Management of Technology & Innovation

Management of Technology & Innovation

2015, Author

For Private Circulation only to the Students of ADDOE.

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Published by: Amity Directorate of Distance & Online Education, Noida

 Contents
Page No.
Unit-I
Lesson 1 Technology Management 3
Lesson 2 Technology Policy Strategy 43
Unit-II
Lesson 3 Technology Forecasting 67
Lesson 4 Mathematical Models for Technology Forecasting 92
Unit-III
Lesson 5 Technology Choice and Evaluation 109
Lesson 6 Analytic Hierarchy Method 129
Unit-IV
Lesson 7 Technology Transfer and Acquisition 161
Lesson 8 Technology Adoption and Productivity 188
Unit-V
Lesson 9 Technology Absorption and Innovation 225
Lesson 10 Technology Measurement 275
UNIT I
LESSON

1
TECHNOLOGY MANAGEMENT
CONTENTS
1.0 Aims and Objectives
1.1 Introduction
1.2 Technology Management
1.3 Technology and Environment
1.4 Technology and Society
1.5 Technology Impact Analysis
1.6 Methods and Techniques for Analysis: Steps Involved
1.7 Let Us Sum Up
1.8 Key Terms
1.9 Test Questions
1.10 Suggested Readings

1.0 AIMS AND OBJECTIVES

After studying this lesson, you will be able to explain:
1. The scope, components, and overview of technology management.
2. The relation of technology with environment and society.
3. The impact of technology on environmental, social, legal, and political arena.
4. Methods, steps and techniques involved in the analysis of the impact of technology.

1.1 INTRODUCTION
Science and technology have profoundly influenced the course of human civilization. Science
has provided us remarkable insights into the world we live in. The scientific revolutions of
the 20th century have led to the emergence of many technologies, which promise to herald
wholly new eras in many fields. As we stand at the beginning of a new century, we have to
ensure the fullest use of these developments for the well being of our people.
Technology is rapidly changing our world. It is bringing us advantages beyond our
grandparents' wildest dreams. It seems that with each year the pace of change quickens.
Each new process or invention makes even further advances possible. Such 19th and
20th century inventions such as the telephone, the phonograph, the wireless radio, the
motion picture, the automobile, and the airplane only to enhanced served only to add to
the nearly universal respect that society in general felt for technology.
Technology Management With the development of assembly-line mass production of automobiles and household
appliances, and the building of ever taller skyscrapers, acceptance of innovations became
not only a fact of everyday life but also a way of life in itself. Society was being rapidly
transformed by increased mobility, rapid communication, and a deluge of available
information from mass media. Since the 1950s, technology in R&D activities has also
advanced significantly.
There are numerous factors that have contributed to these changes. Rothwell and Zegveld
(1985) (Reindustrialization and Technology, Longman, London) identify three important
factors:
Technology Explosion: Both authors surmise that 90% of our present technical
knowledge has been generated during the last 55 years.
Shortening of the Technical Cycle: The technology cycle includes scientific and
technological developments prior to the traditional products life cycle. These cycles have
been slowly shortening, forcing companies to focus their efforts on product development.
As a result, the market life of a model of a motor cycle has reduced drastically. Earlier,
a model proved to be a cash cow for an organization for years. But today companies are
launching new models every next year, sometimes even within the same financial year.
Globalization of Technology: Countries of the Pacific Rim have demonstrated the
ability to acquire and assimilate technology into new products. This has resulted in a
substantial increase in technology transfer in the form of licensing and strategic alliances.
1.1.1 Defining Technology
Technology denotes the utilisation of the materials and processes necessary to transform
inputs into outputs. People create technology and technology affects people in turn,
especially through the goods it produces and the working conditions it creates. Technology
may be described as a set of specialised knowledge applied to achieving a practical
purposes.
The term technology is applied widely to objects as diverse as manufacturing hardware,
search procedures, or anything found 'inside one's brain' or skills possessed by people.
Technology has been defined in many ways. It has been defined as 'the ensemble of
forces by which one uses available resources on order to achieve certain valued ends'
and as 'any tool or technique, any products or process, any physical equipment or method
of doing or making, by which human capacity is extended.' It is also defined as 'the
systematic modification of the physical environment for human needs' as 'the sum of
ways in which a social group provides itself with the material objects of its civilization.'
(Random House Dictionary, 2nd edition).
The definitions mentioned covers widely diversified aspects. Putting all these aspects
together we can say that technology encompasses the hardware (machines) and software
(technique), which are meant for particular purposes. Besides this, it also includes certain
skills and knowledge, though often not mentioned, as they are essential to ensure the
effective and efficient use to technology. Technology is embodied in tangible products
such as machinery or industrial complexes, or in legal documents such as patents, licenses
or know-how contracts. It may also be expressed in the form of a skill, practice, or even
a 'technology culture,' which is sometimes so diffused that it is difficult to notice.
A definition that appears suitable was proposed by UNCTAD (1979), 'technology means
a process or the rendering of a service, including any integrally associated managerial
4
and marketing techniques.' Thus technology is particle knowledge of how to do and Technology Management
make things. Storper & Walker (1989) defined technology as 'technology refers to the
general capabilities of human societies to transform nature into useful products for human
consumption.'
Technology can be defined through the following understandings:
1. Technology is more than the hardware or the non-natural objects manufactured
by humans.
2. Technology includes know-how, i.e., having the information, skills and procedures
necessary to design, produce or use technology. Such know-how is not sufficient
in itself.
3. Technology is the process of manufacturing the hardware, which includes the
economic, social and political environments that make this manufacture possible
(for example, an important part of understanding a technological development is
understanding how and, as a consequence, why it is funded).
4. Technology is the use of hardware and people in order to extend human capabilities
(For example, the use of automobiles leads to a system of roads, gas stations and
driving laws. It is this combined system that extends the human capability of moving
about).
5. Technology is an ordered, rational effort to solve definable problems.
Technology enriches and eases daily life, but can carry with it unanticipated side effects.
It is important to consider the benefits compared with the costs--in terms of resources,
value and money--before and during the development of a technology. There is always
a degree of risk involved, because of the difficulty in predicting all the effects of a
particular technological development.
Technology involves four main elements:
1. General theoretical and practical understanding of how to do things (social
knowledge).
2. Objects (goods).
3. Installed techniques of production (processes).
4. The personal know-how and abilities of workers (skills).
Technology applies to all - from marketing to communications, product developments,
process innovations, etc. And through technology management, one can see the way,
how to harness technology development and innovation to create value for one's company,
giving one the edge to compete, providing him competitive advantage over his/her rivals.
Technology thereby becomes an imperative factor that one needs to incorporate in the daily
carrying on of one's professional life. It is a very important tool, together with the values that
go along with it - innovation, creativity, efficiency - in the conduct of one's business.

1.2 TECHNOLOGY MANAGEMENT

Technology management is just the same as any other management disciplines you have
out there. It is basically employing the following traits:
5
Technology Management 1. Planning
2. Organizing
3. Staffing
4. Implementing
5. Monitoring/Evaluation
It is pertinent to note here that, you need to add the technology factor into all the above-
mentioned activities. It is clear that technology makes life much easier or more complicated,
however technology figures in everybody's life. But technology was made and developed
primarily because there is a need to be fulfilled and that we want to make things so much
easier. Technology thereby becomes an imperative factor that we need to incorporate in
the daily carrying on of our professional lives. It is a very important tool, together with the
values that go along with it - innovation, creativity, efficiency - in the conduct of our business.
Technology Management can also be defined as the integrated planning, design,
optimization, operation and control of technological products, processes and services, a
better definition would be the management of the use of technology for human advantage.
Perhaps the most authoritative input to our understanding of technology is the diffusion
of innovations theory developed in the first half of the twentieth century. It suggests that
all innovations follow a similar diffusion pattern - best known today in the form of an "s"
curve though originally based upon the concept of a standard distribution of adopters. In
broad terms the "s" curve suggests four phases of a technology life cycle - emerging,
growth, mature and aging.
These four phases are coupled to increase levels of acceptance of an innovation or, in
our case a new technology. In recent times for many technologies an inverse curve -
which corresponds to a declining cost per unit - has been postulated. This may not prove
to be universally true though for information technology where much of the cost is in the
initial phase it has been a reasonable expectation.
1.2.1 Scope of Technology Management
Technology Management is set of management disciplines that allows organizations to
manage its technological fundamentals to create competitive advantage. Typical concepts
used in technology management are technology strategy (a logic or role of technology in
organization), technology mapping (identification of possible relevant technologies for
the organization), technology roadmapping (a limited set of technologies suitable for
business), technology project portfolio (a set of projects under development) and
technology portfolio (a set of technologies in use).
The scope of technology management in an organization remains to understand the
value of certain technology for the organization. Continuous development of technology
is valuable as long as there is a value for the customer and therefore the technology
management function in an organization should be able to argue when to invest on
technology development and when to withdraw.
The scope of technology management also includes the integrated planning, design,
optimization, operation and control of technological products, processes and services. This
includes the management of the use of technology for human advantage. During the last
decade, the rate of change in information technology has increased. Indeed it is clear that
6 we are now entering an era where explosive change in telecommunication technology
combined with ever increasing computing power will lead to profound changes in information Technology Management
systems that support our organizations. These changes will affect the way our organizations
function, will lead to new business opportunities and will create a need for new non-profit
organizations. Governments and international organizations do and will have to scramble to
create policies and laws for control of public goods and services such as airwaves and
public networks. Educational institutions will continue to change the content of educational
materials they deliver to include new knowledge and skills. In addition these institutions will
change the delivery mechanisms for disseminating these materials.
For instance, the use of information technology, i.e., computers and internet is very wide.
Information Technology is managed in various Management Roles. There are a number
of journals that address different technologies such as databases, knowledge bases,
multimedia, group-ware, telecommunications, etc. This current trend is understandable
because these technologies are indeed complex and often have a multitude of technical
issues requiring in-depth study. On the other hand, business solutions almost always
require integration of a number of these technologies. Therefore it is important to have a
journal where the readers will be exposed not only to different technologies but also to
their impact on information system design, functionality, operations and management. It
should be emphasized that information systems include not only machines but also humans;
therefore, the journal will be an outlet for studies dealing with man/machine interface,
human factors and organizational issues. Furthermore, managerial issues arising from
and dealing with management of information technology and systems including strategic
issues are included in the domain of coverage.
1.2.2 Components and Overview of Technology Management
The transformation of natural resources into produced resources can be described in the
following terms:
1. Inputs: Natural resources and produced resources (semi finished products and
goods).
2. Outputs: Produced resources.
3. Production Activity: The mode of converting inputs into outputs.
4. Technology: The transformer and the core of the transformation facility.
From the above perspective, four basic components of technology may be identified:
1. Technoware: Object embodied technology
2. Humanware: Person embodied technology
3. Infoware: Document embodied technology
4. Orgaware: Institution embodied technology
Technoware encompasses any tools and facilities. It consists of equipment, machinery,
vehicles, physical facilities, instruments devices, structures and factories. Humanware
consists of skills and knowledge, wisdom, expertise, proficiency, creativity, diligence,
dexterity, ingenuity and so on. Infoware includes all kinds of documentation and all
accumulated facts and figures pertaining to process specifications, procedures, theories,
designs, observations etc. Organware comprises allocations, systematisations, organisations,
network communications, groupings and all aspects of management practice. All components
interact with each other and the phenomenon of technology becomes active works.
7
Technology Management

Technoware

Humanware Technology Orgaware

System

Infoware

Figure 1.1: Four Basic Components of Technology

Characteristics of Technology
Technology has following principal characteristics:
1. It involves a particular set of elements for the production of a given service or
commodity.
2. Technology is a dynamic phenomenon that changes over time to develop new
methods of production and new products.
3. Any set of technology associated with a unique range of outputs in term of type,
quantity and quality.
4. Technology is characterised by the dynamic of incessant improvement, which means
that it needs to be continually improved.
5. Just as technology is determined by the designer, the environment and the user, it
also needs to be looked at in terms of location (regardless of which the definition of
technology is used, it tends to differ according to the place in question).
6. Technology is constantly replenishing able national resources.
7. It generates wealth, which in turn is the key to power (economic, social and political).
8. Technology is the prime factor in domestic productivity and international
competitiveness.
9. It is a driver of new alliances among academia, business and the government.
10. Technology requires new managerial philosophy and practice.
Technology Adoption
Technology adoption is a process of making the technology fit for the organization. In the
process of adoption of technology, it is re-engineered or modified significantly to match
the socio-economic and technological situation of the user. Adaptation of new technology
8 also involves matching it with the characteristics of technology utilisers or human resources,
including workers/operators of the technology. Sometimes it may even require changes Technology Management
in the management structure. As the company shifts from labour intensive technology to
capital intensive technology, it requires drastic changes in its structure of management.
Technology Diffusion
The extent of diffusion of a technology at any given time is defined by the degree to
which it is being applied at that time. Diffusion thus may be seen as the continuous or
'gradual' process of growth of the application of a technology with the passage of time.
The rate of the diffusion of a technology depends upon the characteristics of the country.
Diffusion of information about technology always precedes the diffusion of technology.
The better the diffusion of information, the easier will be the process of diffusion of
technology.
Appropriate Technology
No single technology can be considered appropriate for every country or organization.
What may be appropriate for the US totally may be a totally unsuited for Bangladesh or
Zambia, or what may be appropriate for HLL may be misfit for KTC (Ghari Detergent).
Before the adaptation of technology its appropriateness should be checked. To produce
the same product there can be machine intensive technology and Labour intensive
technology.
Selection of technology is merely a means to achieve an end (objective). Thus, if selection
of technology does not solve the purpose, or if it has a high opportunity cost, then it is
obviously not appropriate. Capital intensive technology (machine intensive technology)
has a strong emphasise on high investment in machines and thus requires a considerable
lesser amount of labour. On the other hand, labour-intensive technology places greater
emphasis on the human factor. Thus, technology should be selected on the basis of
availability of labour and its cost. For a technology to be appropriate it should meet the
technical, socio-cultural, political and economic requirements of prevailing situation. Its
appropriateness can be judged on the basis of following criteria:
1. Effectiveness
2. Affordability
3. Cultural Acceptability
4. Local Sustainability
5. Efficiency
6. Measurability (its impact and performance need proper evaluation)
Application of Technology
There was a time when the United Kingdom begged the maximum number of Nobel
Prizes while Japan was getting wealthy. During this Japan was not giving any significant
emphasis on basic research. Thus, wealth lies not in inventing and discovering technology
but in its application. Application of technology requires a set of specific capabilities.
These capabilities are different in nature from those involved in innovation or invention.
Technology also requires the ability to make effective use of technological knowledge.
Technological capabilities require better application of technology including the ability
to acquire, use, assimilate, adapt, change and create technology. Four different kinds
of technological capabilities are identified: acquisitive, operative, adaptive, and innovative. 9
Technology Management While operative capabilities pertain to production know-how, adaptive and innovative
capabilities relate to technological efforts that are central to the effective assimilation
of technology and to simultaneous as well as subsequent adaptation to fit local
circumstances better.
Two examples of market innovations based on existing technology:
l The walkman - the invention of the walkman meant no new technologies, only a
new application of technology.
l The breakthrough of the Internet in the mid-90s; at that time this particular technology
was already old. The breakthrough was a result of a convincing constellation of
applications.
Changes in technology affects (i) physical devices (such as machines, tools, instruments
and equipment); and (ii) techniques and working methods. Thus technology usually
influences:
1. Employee training needs
2. The nature of employees' tasks
3. Organizational structures
4. Employee job satisfaction and attitudes towards work.
Table 1.1: Nineteenth Century Economic Development Fuelled by
Technological Innovations

Innovation Innovator Date

Steam Engine James Watt 1770-80
Iron Boat Isambard Kingdom, Brunei 1820-45
Locomotive George Stephenson 1829
Electromagnetic Induction Michael Faraday 1830-40
Dynamo
Electric Light Bulb Thomas Edison & Joseph Swan 1879-90

Types of Technology
From an R&D perspective the company's technology can be of the following types:
1. Core Technologies
2. Complementary Technologies
3. Peripheral Technologies
4. Emerging Technologies
Core Technologies: The core technology is usually central to all or most of the company's
products, like, for instance, diesel engine technology is central to Mahindra &Mahindra.
Complementary Technologies: Complementary technologies are additional technologies
that are essential in product development. For example, designing, shockers, deferential
are complementary technologies for automotive companies.
Peripheral Technologies: Peripheral technology is defined as technology that is not
10 necessarily incorporated into the product but whose application contributes to the business.
Computer software, or microprocessor technology are peripheral technologies for Technology Management
Mahindra & Mahindra.
Emerging Technology: These are new to the company but may have long term
significance for the product. Alternative fuel technology is an emerging technology for
Mahindra & Mahindra.
It is important to mention that what is today an emerging technology will be a peripheral
technology in the future. Similarly, what is today a peripheral technology can become a
core technology tomorrow. As alternative fuels (bio-diesel, solar, etc.) may be an emerging
technology today but in the future as the prices of fossil fuel will rise, alternative fuel
technology will certainly become the core technology for the industry.

1.3 TECHNOLOGY AND ENVIRONMENT

Technology on the one hand has contributed to the enhancement of society on the other
hand it has also led to the emission of affluent and hazardous gases thus causing serious
harm to the environment. It is due to the credit of technology that we have been able to
overcome the tedious life from toiling land, to cultivation, seeding, cropping, and taking
the foodgrains to godowns and markets. The lack of rain is not havoc as it used to be in
the past, courtesy submersible water- pumps, srinkle water irrigation systems.
There are faster calculations and predictions on the weather and rainfall, thus the prior
strategies in advance may be adopted, and steps necessary to overcome the possible
drought or flood may be taken. It is due to the rapid advancement in technology that we
have been able to reach the remote hilly areas and the transportation and logistics facilities
have facilitated the farmers from the remote areas to sell their crops, fruits and vegetables
in the markets or mandis of their choice. With the same the ill effect of technology
advancement and rapid industrialization has culminated into pollution and waste, especially
in the metro and big cities, where the poor lower strata in slums with a degraded living
have been noxious to their next clan as well. Thus the government's so called endeavours
to check environment pollutions seem inadequate, in view of the fact that large strata of
society is still living in sub - human environmental standards.
The technology has remained less effective in eliminating the poverty, illiteracy, and
religious narrow-mindedness. The inadequate measures on the part of municipalities and
administration, especially in checking pollution, disposal of waste, garbage and dirty water,
sanitary conditions and places for the disposal of the biodegradable waste, have also led
to the persistence of the environmental pollution. Albeit technology, if properly utilized in
private and public sector then the pollutants and emissions can be checked to a larger
extent. The government is keen on eliminating pollutants and effective measures have
been taken under The Water (Prevention and Control of Pollution) Act, 1974, Air
(Prevention and Control of Pollution) Act, 1981, and Environment Protection Act, 1986.
Also the guidelines to be followed are provided, including penalty for violation of the
provisions of these laws.
1.3.1 Technological Environment
The 1950s and 60s were known as the age of efficiency, the 70s and 80s marked the age
of quality, and the 1980s and 90s were called the age of flexibility. Now we are in the age
of innovation. Modern society lives by innovation. For the past hundred years the business
firm has been the key institution for the economic and social development of societies.
For the next hundred years, it is predicted that the key institutions involved with
development, will be the institutions that provide the sources of innovation and knowledge.
'Technology' is a new force that has great relevance in the modern corporation. 11
Technology Management Robert Kaplan and David Norton in their book, 'Strategy Maps' argue that the most
critical aspects of strategy, to ensure sustained value creation in an organization, depends
on four key internal processes. Of these four, one is 'innovation.' Technology is the
outcome of innovation; and innovation is a key strategic component of business. The
implication is that technology impacts all businesses, differing only in extent.
Technology generally plays a very important role in the formation and development of
new businesses, even though entry may be based on factors other than technology. Yet,
for a running business, technology is important to the extent it is required to imbibe the
components of knowledge, organization, methods and skills in its existing operations.
This is because technology is an historical artifact and an anchor. It forms the starting
point from which the firm views changes and, therefore, a running organization is interested
in 'technology', but in limited measure. Its prime interest is in 'Technological Change'.
This is because 'Technological Change' gives the organization a competitive edge over
its rivals provides it with the capability to introduce new products and services and adds
value to what it offers the consumer.
1.3.2 Technological Environment in an Organisation
Technology is a key driver of the new competitive landscape. The technological segment
includes institutions and activities involved with creating new knowledge and translating
that knowledge into new outputs: new products, processes, and materials. The
technological environment has to be considered as an entity in itself. This is to emphasize
the importance of technological change as the major contributor to the state of dynamic
change and uncertainty in today's business environment.
Depending upon the product lines and market an organization is in, either the macro or
the micro environment by itself may not be relevant to the operations of the organization.
Each organization has a unique external environment and no two organizations will have
an identical environment. Though not all the elements of the environment are of interest
to every organization; all of them have some impact on all organizations; and some of
these elements have significant impact on some organizations.
The relevant environmental factors may contain elements from the mega as well as the
micro environment. This is shown schematically in figure 1.2. This is the relevant
environment for the organization to monitor.
Business organizations in order to survive have to keep improving their working. In a
highly competitive and dynamic environment this approach of organizations has become
necessary to ensure the long term development of the organization. Leading organizations
in India like Hindustan Levers, Wipro, Satyam and Larsen & Toubro, etc., demonstrate
this strategic orientation.

Mega
Environment

Micro
Environment

Firms
Environment

12 Figure 1.2: The Organization's Environment

 Technology Management
1.4 TECHNOLOGY AND SOCIETY
Technology has surely laid a tremendous effect on the way individuals communicate,
learn, and think. It helps define society and determines how one interacts with others on
a daily basis. Technology has both positive and negative affects on society including the
possible improvement or declination of society. Society is defined as, "the sum of social
relationships among human beings" and technology is defined as, "the body of knowledge
available to a civilization that is of use in fashioning implements, practicing manual arts
and skills, and extracting or collecting materials." Technology shapes our society and has
both positive and negative affects. One aspect of technology that has had great impact
upon society is mechanical inventions. Before machines were invented everything had
to be handmade. However, with these new and improved forms of communication and
information accessing come unforeseen problems and glitches. The Internet provides
phone numbers, addresses, and other information to anyone who is interested. However,
as is the case with any change, society had to reevaluate the traditions that had for so long
been in place, creating a sense of tension and unrest for those not ready for the change.
While technological advancement has had many negative affects on the general public,
it has also had many positive affects on society. Technology now provides advanced
warnings about earthquakes, volcanic eruptions, tornados, hurricanes, flooding, and even
knowledge of impending severe thunderstorms. The obvious positive affect of such a
change was the efficiency such inventions created in the lives of everyday citizens.
Phones, e-mails, instant messenger, and the Internet are all a part of the technology
today's citizens take for granted. One such negative affect is the invasion of privacy that
comes from having personal information online.
Technology has made huge advancements in the way that we communicate with others.
Some would say that technology such as the Internet has done more harm than good
when it comes to its influence on society. With all of these positive and negative affects,
how does one respond to technology's impact on society? Technology improves society
in that we have easy access to news, faster ways to communicate, and more efficient
ways of living. Overall it is not technology that has a negative effect on society, but
rather the way that it is used that has led to the negative effect on the society. The use
of these technological advancements if used for the right purposes can be wonderful.

1.5 TECHNOLOGY IMPACT ANALYSIS

Technology is knowledge of using tools and machines to do tasks more efficiently. We
use technology to control the world we live in. Since the art of making fire and creating
handcrafted tools, our civilization has come a long way. Science and Technology are
making advances at an astonishing rate. From telephones to the Internet, calculators to
computers, cars to rockets and satellites, we are part of a new world of discoveries and
inventions made possible by Science. Fields like Medicine and communications have
changed our cultures and our lifestyles. The technology that surrounds almost everyone
in the modern society, affects both work and recreational activities. Technology is one of
the principal driving forces of the future; it is transforming our lives and shaping our
future at incomparable rates in history. Technology has been constant change and
advancement in technology.
The impact of technology contains a number of different elements as to how satisfied
we are in our day to day lives. The impact of technology on these elements can change
how safe, healthy and happy people feel. Throughout history, people have looked for 13
Technology Management better ways to meet their needs and to satisfy their expectations. Technology has improved
the way people feed, clothe and shelter themselves. Technology has also changed other
aspects of everyday life, such as health care, education, job satisfaction, and leisure time
activities. The technology which surrounds almost everyone in the modern society, affects
both work and leisure activities.
It is the impact of technology, that the information that is presently accessible would
have not been accessible otherwise. It influences minds in good and bad ways, and it
allows people to share information which they would otherwise not be able to attain.
Even if a person does not own a computer or have credit cards, there is information on
a computer somewhere about everyone. The technology which is just now beginning to
be manipulated and harnessed is affecting the minds of small children and adolescents in
ways that could be harmful. It is affecting our immediate future. It is also technology
that has given another form of communication and exchange of information. Discipline
which seeks, with the aid of various methods (e.g., listing of problems, objectives and
means), to analyze the effects of technology on different areas of life and to avoid
identifiable harmful or unwanted consequences or promote a human- and environment-
centered technology strategy.
In modern time the technology impact analysis comprises three component elements:
technological forecasting, impact analysis and policy analysis, in which an attempt is
made to take account of imponderables of future developments, particularly as regards
the nature of the process of political and economic implementation. This is of special
importance in the case of universally applicable technologies e.g., microelectronics. The
nature and impact of their use depend on how, in a given situation, the available elements
are selected and combined with organization and human-related measures. Since the
users concerned are, however, able to anticipate future developments in only an
approximate fashion, there is an increased danger that all other considerations will be
subordinated to whatever happen to be the dominant interests at the time. In the past,
there was no institutionalized basis for technology impact analysis and assessment.
1.5.1 Environmental Aspect
The rapid pace of technological advancement gives rise to a sense and growing concern
for environmental degradation caused by the industrial units. This has brought into focus
the need for strategic management of Technical Innovations and Life Cycle Engineering
to further the cause of Green Manufacturing. In the present study, a systems approach,
integrating life cycle engineering with technology and innovations, manufacturing systems
and environmental and ecological systems is discussed in the context of modern-day
manufacturing. There were also adopted strategies for achieving Green Productivity
and Green Manufacturing. A firm's transition toward clean manufacturing (CM) is largely
driven by public policy. The pursuit of CM focuses on reducing the amount and toxicity
of waste from manufacturing processes. The demand of the environmental conditions
has led to the innovations and development of new technologies to meet the emerging
requirements. For example, shortage of rain or river - water for irrigation, led to the
innovation of tube-wells, and wherever the water level was found to be much deeper,
there submersible pumps are currently in voyage in many parts of modern India.
1.5.2 Social Aspect
The social aspect of technology is so powerful that it is difficult to escape the influence
of technology on modern life. It lurks behind every door: the classroom, home, office,
and store. There are many who are resistant to new technology, saying that technology
14 causes harm to society. These claims are often made without the realization that technology
also includes important and indispensable parts in their life such as writing and the tools Technology Management
for writing. Writing was one of the first technologies invented. Technology has now
become so entrenched in the majority of cultures around the world that it is hard to
imagine a life or society without writing. For those that maintain a majority of technology
beyond writing is harmful, imagine the difficulty in writing without the help of other
technologies, which includes pencils, paper, computers, printing presses, and a number
of other technological aids.
The traditional view is that a technology is handed as a finished product to the consumer,
who will then take it and use it in exactly the way the producer intended, to the means
that the producer intended. At no time will this be questioned; it is a one-way linear
process: a direct instance of cause and effect. This theoretical autonomy supposedly
happens without any intervention from the social aspects of research and development:
i.e. no feedback is required beyond the initial test phase. Thus, once the technology is
available, it has an in-built, pre-determined impact, regardless of where it is to be used or
by whom. In view of the question of revolution versus evolution, the technological
determinism viewpoint is definitely on the 'revolution' side. Revolution connotes sudden,
dramatic change and a break with the past. If we accept the one-way, linear process to
be correct, then we can also accept it to be revolutionary. Suddenly, we have the technology
available now that was undreamed of even thirty years ago. Our lives have become akin
to something from a science fiction novel.
Social determinism propagates the opposite ideas. Although social determinism does not
and could not deny that technology has an effect on society, its emphasis is more on the
social forces behind the development and implementation of technology. Here, we can
align 'social shaping' with 'evolution' and consider it to be a gradual incremental change
which is consistent with past developments. It is therefore possible to say that:
Technology is produced in environments and contexts, as a result of the actions and
decisions, interests and visions, of men and women at work in organizations and institutions
of complex and shifting politics and economics. This is most apparent in the research
and development that goes into a particular technological product. Many companies
have large research and development departments and consultative committees comprising
of various community groups who each have input into the direction a technology takes.
Software is increasingly distributed in various stages of development: 'beta versions' can
be downloaded free from the Internet, with specific requests for feedback on bugs and
glitches in the program. There seem to have been two basic approaches to the 'social
shaping' of technology. The first is the 'social constructivist' approach, where a
technological field is studied to discover where there have been ambiguities, such as
different ways a product could have been designed, and studies are made to determine
why one design should have succeeded rather than another.
The second approach to the 'social shaping' of technology is the 'neo-Marxist' approach,
where rather than a particular field being studied, a social context where a technological
change has occurred is studied to see what happened to cause such a change. For
example, one could observe the computer games magazine industry and ask why it was
that magazines on the whole changed from providing free cover floppy disks and started
to provide free CD ROMs instead. The 'neo-Marxist' approach might possibly argue
that it was to appeal to a higher 'class' of computer user and thus alienate those users
who did not possess the required technology to operate CD ROMs and perhaps to
increase the rate of technological change in favour of CD ROM drives. This approach
obviously takes a much broader view of 'social shaping' and includes political and economic
contexts. 15
Technology Management The whole issue of the 'social shaping' of technology is not quite as dichotomous as it
would first appear. It is not simply a matter of social versus technological: this would be
a massive understatement of the complexity of the issue. A sensible viewpoint would be
to see revolution as evolution: revolution defined as 'movement as if in a circle', which
may seem to be rather non-committal, but is actually a more truthful and accurate statement
of the interaction between technology and society. A third factor - consumption - can be
added to the equation to more fully examine the phenomenon of the dynamic nature of
the 'social shaping' of technology.
Once a technological product has passed through the various processes of research and
development, manufacture, marketing and packaging and finally reaches the consumer,
the process of social shaping is by no means at an end. This is the point at which we
begin to realize that the technological product does not have a pre-determined impact on
an individual's life. Rather, it now becomes the task of the individual to customise the
product to suit their needs or lifestyle. The consumer, at this point, is possibly just as
important in the social shaping of the technology as the designer. It shows yet another
instance of social shaping if the product subsequently proves to be useless to the consumer
and is jettisoned in favour of different product. The consumer is a processor, the turner
of things into social and cultural values, but most active in the self-referential authorship
of its own processes of consumption.
The social shaping of technology arises from the idea of determinism and the contrast
between technological or revolutionary determinism and social or evolutionary
determinism. It has also shown that the study of the social shaping of technology has
previously been broken down into two general approaches - the social constructivist
theory versus the neo-Marxist theory and has concluded that by adding the consumption
or appropriation factor to the whole technological / social argument, one can begin to
appreciate the complexity of the dynamic relationship found therein, which is the basis
for social shaping. Throughout the essay, the various points have been illustrated by
using relevant information technology examples from the sphere of home computing.
The social shaping of technology can thus be understood to be the process whereby the
various sectors of industry combine knowledge, expertise and feedback to present a
product to the general public for consumption, where consumption is the customization
or appropriation of the product by the consumer to suit their own individual requirements.
1.5.3 Legal Aspect
The technology has fastened the online banking and other commercial transactions. The
development of information technology has improved the communication, has facilitated
the growth of trade and commerce and thus, has made the over all life comfortable. It has
now become easy to do cash-less transaction with the help of plastic money. The technology
has improved the quality of governance and general administration by empowering people
and bringing in speed, transparency and accountability. However, bigger the power, bigger
is the responsibility. The people using the technology have to be aware of the banes of
technology. The same technology, which has so many advantages, has brought with it
certain disadvantages. It has facilitated the online frauds and other criminal activities such
as defamation, theft, obscenity, and violence etc. The biggest advantage for the offender
committing online crimes is that they can remain anonymous. This possibility to remain
anonymous has made the investigation into these activities difficult. After investigation, the
courts also face the problems concerning conflict of law relating to jurisdiction and application
of appropriate law. Given these difficulties of the legal regime, it becomes the responsibility
of the people to be aware of the disadvantages of the technology so as to wane away
16
cheating and other mis-happenings. People should be equipped to protect their rights in
online transactions. They should be able to differentiate between the relevant and non- Technology Management
relevant information in this era of information flooded society.
1. Copyright Act, 1957 and on-line copyright issues: The following provisions of
the Copyright Act, 1957 can safely be relied upon for meeting the challenges of
information technology:
(a) The inclusive definition of computer is very wide which includes any electronic
or similar device having information processing capabilities. Thus, a device
storing or containing a copyrighted material cannot be manipulated in such a
manner as to violate the rights of a copyright holder.
(b) The term computer Programme has been defined to mean a set of instructions
expressed in words, codes, schemes or in any other form, including a machine
readable medium, capable of causing a computer to perform a particular task
or achieve a particular result. It must be noted that Section 13(a) read with
Section 2(o) confers a copyright in computer Programme and its infringement
will attract the stringent penal and civil sanctions.
(c) The inclusive definition of literary work includes computer programmes, tables
and compilations including computer databases. Thus, the legislature has taken
adequate care and provided sufficient protection for computer related
copyrights.
(d) The copyrighted material can be transferred or communicated to the public
easily and secretly through electronic means. To take care of such a situation,
the Copyright Act has provided the circumstances which amount to
communication to the public. Thus, making any work available for being seen
or heard or otherwise enjoyed by the public directly or by any means of
display or diffusion other than by issuing copies of such work regardless of
whether any member of the public actually sees, hears or otherwise enjoys
the work so made available, may violate the copyright. The communication
through satellite or cable or any other means of simultaneous communication
to more than one household or place of residence including residential rooms
of any hotel or hostel shall be deemed to be communication to the public
(e) The copyright in a work is infringed if it is copied or published without its owner's
consent. The Copyright Act provides that a work is published if a person makes
available a work to the public by issue of copies or by communicating the work
to the public. Thus, the ISPs, BBS providers, etc may be held liable for copyright
violation if the facts make out a case for the same.
(f) The copyright in a work shall be deemed to be infringed when a person,
without a license granted by the owner of the copyright or the Registrar of
Copyrights under this Act or in contravention of the conditions of a license so
granted or of any condition imposed by a competent authority under this Act-
(i) Does anything, the exclusive right to do which is by this Act conferred
upon the owner of the copyright, or
(ii) Permits for profit any place to be used for the communication of the
work to the public where such communication constitutes an infringement
of the copyright in the work, unless he was not aware and had no
reasonable ground for believing that such communication to the public
would be an infringement of copyright. 17
Technology Management (g) The Copyright Act specifically exempts certain acts from the purview of
copyright infringement. Thus, the making of copies or adaptation of a computer
Programme by the lawful possessor of a copy of such computer Programme
from such copy in order to utilize the computer Programme for the purpose
for which it was supplied or to make back-up copies purely as a temporary
protection against loss, destruction, or damage in order only to utilize the
computer Programme for the purpose for which it was supplied, would not be
copyright infringement. Similarly, the doing of any act necessary to obtain
information essential for operating inter-operability of an independently created
computer Programme with other programmes by a lawful possessor of a
computer Programme is not a copyright violation if such information is not
otherwise readily available. Further, there will not be any copyright violation
in the observation, study or test of functioning of the computer Programme in
order to determine the ideas and principles, which underline any elements of
the Programme while performing such acts necessary for the functions for
which the computer Programme was supplied. The Act also makes it clear
that the making of copies or adaptation of the computer Programme from a
personally legally obtained copy for non-commercial personal use will not
amount to copyright violation.
(h) If a person knowingly makes use on a computer of an infringing copy of a
computer Programme, he shall be held liable for punishment of imprisonment
for a term which shall not be less than seven days but which may extend to
three years and with fine which shall not be less than fifty thousand rupees
but which may extend to two lakh rupees. However, if the computer
Programme has not been used for gain or in the course of trade or business,
the court may, for adequate and special reasons to be mentioned in the judgment,
not impose any sentence of imprisonment and may impose a fine which may
extend to fifty thousand rupees.
It must be noted that copyright can be obtained in a computer Programme
under the provisions of the Copyright Act, 1957. Hence, a computer
Programme cannot be copied, circulated, published or used without the
permission of the copyright owner. If it is illegally or improperly used, the
traditional copyright infringement theories can be safely and legally invoked.
Further, if the medium of Internet is used to advance that purpose, invoking
the provisions of the Copyright Act, 1957 and supplementing them with the
stringent provisions of the Information Technology Act, 2000, can prevent
the same.
2. Information Technology Act, 2000 and on-line copyright issues: The following
provisions of the Information Technology Act, 2000 are relevant to understand the
relationship between copyright protection and information technology:
(a) Section 1(2) read with Section 75 of the Act provides for extra-territorial
application of the provisions of the Act. Thus, if a person (including a foreign
national) violates the copyright of a person by means of computer, computer
system or computer network located in India, he would be liable under the
provisions of the Act.
(b) If any person without permission of the owner or any other person who is in
charge of a computer, computer system or computer network accesses or
secures access to such computer, computer system or computer network or
18 downloads, copies or extracts any data, computer data base or information
 from such computer, computer system or computer network including Technology Management
information or data held or stored in any removable storage medium, he shall
be liable to pay damages by way of compensation not exceeding one crore
rupees to the person so affected. Thus, a person violating the copyright of
another by downloading or copying the same will have to pay exemplary
damages up to the tune of rupees one crore which is deterrent enough to
prevent copyright violation.
(c) While adjudging the quantum of compensation, the adjudicating officer shall
have to consider the following factors:
(i) The amount of gain or unfair advantage, wherever quantifiable, made
as the result of the default;
(ii) The amount of loss caused to any person as a result of the default;
(iii) The repetitive nature of the default.
Thus, if the copyright is violated intentionally and for earning profit, the quantum
of damages will be more as compared to innocent infringement.
(d) A network service provider (ISP) will not be liable under this Act, rules or
regulations made there under for any third party information or data made
available by him if he proves that the offence or contravention was committed
without his knowledge or that he had exercised all due diligence to prevent
the commission of such offence or contravention. The network service provider
under section 79 means an intermediary and third party information means
any information dealt with by a network service provider in his capacity as an
intermediary.
(e) The provisions of this Act shall have overriding effect notwithstanding anything
inconsistent therewith contained in any other law for the time being in force.
The provisions of the abovementioned two enactments show that the Copyright
protection in India is strong and effective enough to take care of the Copyright
of the concerned person. The protection extends not only to the Copyright as
understood in the traditional sense but also in its modern aspect. Thus, on-line
copyright issues are also adequately protected, though not in clear and express
term. To meet the ever- increasing challenges, as posed by the changed
circumstances and latest technology.
3. The IT Amendment Act, 2008: The IT Amendment Bill 2008 has been passed by
the Lok Sabha and the Rajya Sabha in the last week of December, 2008. The said
Bill aims to make sweeping changes in the existing Indian cyberlaw, namely the
Information Technology Act, 2000.
The Information Technology Act, 2000 is Indias mother legislation regulating the
use of computers, computer systems and computer networks as also data and
information in the electronic format. The said legislation has provided for the legality
of the electronic format as well as electronic contracts. This legislation has touched
varied aspects pertaining to electronic authentication, digital signatures, cybercrimes
and liability of network service providers.
From 17th October, 2000, when the IT Act, 2000 came into implementation till
date, the said legislation has seen some very interesting cases and challenges,
being brought within its ambit. As time passed by, the inadequacies of the said 19
Technology Management legislation came to the forefront. There were various practical difficulties in the
implementation of the said legislation. The inadequacy of the IT Act, 2000 to address
some of the emerging phenomena, challenges and cybercrimes, led to voices
clamouring for change in the Indian cyberlaw.
Consequently, the Government of India tabled the Information Technology
Amendment Bill, 2006 before both the houses of Parliament in December, 2006,
which referred the said amendment bill to the Parliamentary Standing Committee
on Information Technology. The Parliamentary Standing Committee examined the
proposed amendments in a comprehensive manner and thereafter gave its report
and recommendations thereon.
The Parliamentary Standing Committee on Information Technology headed by Shri
Nikhil Kumar, MP did an excellent job in terms of producing its exhaustive
recommendations. These recommendations were noteworthy for their fore vision
and clarity of thought process. Way back in 2007, the Standing Committee had
recommended that the entire menace of cyber terrorism needs to be addressed
with a strong hand.
After examining the said recommendations, the Central Government brought the
Information Technology Amendment Bill, 2008 in Parliament, which got passed by
both the houses of Parliament.
Given the magnitude of the amendments, it is indeed strange and amazing that this
Bill was passed in an unprecedented hurry, without any discussion in both the
houses of the Parliament in the last week of December, 2008.
The IT Amendment Act, 2008, brings about various sweeping changes in the existing
Cyberlaw. While the lawmakers have to be complemented for their appreciable
work removing various deficiencies in the Indian Cyberlaw and making it
technologically neutral, yet it appears that there has been a major mismatch between
the expectation of the nation and the resultant effect of the amended legislation.
The most bizarre and startling aspect of the new amendments is that these
amendments seek to make the Indian cyberlaw a cyber crime friendly legislation;
- a legislation that goes extremely soft on cyber criminals, with a soft heart; a
legislation that chooses to encourage cyber criminals by lessening the quantum of
punishment accorded to them under the existing law; a legislation that chooses to
give far more freedom to cyber criminals than the existing legislation envisages; a
legislation which actually paves the way for cyber criminals to wipe out the electronic
trails and electronic evidence by granting them bail as a matter of right; a legislation
which makes a majority of cybercrimes stipulated under the IT Act as bailable
offences; a legislation that is likely to pave way for India to become the potential
cyber crime capital of the world.
1.5.4 Political Aspects
Any organisation, which wishes to upgrade its existing machines tools or production
technology or to install a fresh unit, with latest equipments and technology, must have the
knowledge of the political climate of the state. It so happened in Haryana in the 80's and
90's in the regimes of Devi Lal and Chautala that many industrial houses, and industrial
units in HSIDC areas, which were contributing to the state exchequer through taxes as
well as employment to the people, had to take a decision to shift to another states, failing
conducive atmosphere. Escorts, and Radhika Rubber shifted its units to Andhra Pradesh.
Similarly, The Tata's had to shift Nano project from Singur in West Bengal to Sanand in
20
Gujarat, courtesy the political dynamism of royal Bengal tigress, Mamta Banerjee.
A knowledge of the form of government can give a useful insight in appraising the Technology Management
political climate. The Governments can be classified as Parliamentary or Absolutist.
Parliamentary governments consult with their citizens from time to time to learn about
their opinion and preferences. Most industrialised nations and all democratic nations can
be classified as parliamentary.
The absolutist system includes monarchies and dictatorships. In an absolutist system the
ruling regime dictates government policy without considering citizens' needs or opinion.
Libya, Saudi Arab, Brunei, Bhutan are instances of absolutist regime. The United Kingdom
and Japan are good examples of constitutional hereditary monarchy where despite the
monarch the government functions accounting to parliamentary democratic model.
Some nations like the former USSR, China, North Korea have some form of elections
and even mandatory voting but are not recognized as parliamentary because the ruling
party never allows any alternative at the ballot.
Governments can also be classified on the basis of the number of political parties. It can
be two-party, multiparty, single party and or dominated by one party. In a two-party
system only two parties dominate national politics as one rules and the other sits in
opposition, although other parties are allowed. The United Kingdom has a Labour Party
and a Conservative Party and USA has the Republican Party and the Democratic Party.
In a multiparty system there are several parties with none of them is strong enough to
gain the control of the government. There are large as well as smaller parties in India,
Germany, France, etc.
In a single party system, there may be several parties but one single party holds the
power and gains control of the government. In India, in 59 years of constitutional history,
it was the Congress that ruled India for almost 55 years.
In a dominant one-party system the dominant party does not allow any opposition, resulting
in no alternatives for the people. The former USSR and Cuba are good examples of this
type of system.
Type of Government: Economic System
The economic systems of a country provide another basis for classification of the type
of government. These systems serve to explain whether businesses are privately owned
or government owned, or if there is a combination of private and government ownership.
Basically three systems can be identified: Communism/Socialism, Capitalism, and Mixed
Economy.
Capitalism
Under capitalism, all factors of production - man, machine, money and land are in individual
hands. They are free to use them to earn a profit and are free not to use them if they
wish. Besides free and unfettered use of property, every body is free to take up any line
of economic activity he likes and is free to enter into any contract with other fellow
citizens for his profit. In the words of Prof. Louks, "capitalism is a system of economic
organization featured by private ownership and its use for private profit of man-made
and nature-made capital."
Features of Capitalism
(i) Right to Private Property: Every individual has a right to acquire property, to
keep it and to pass it on to his heirs. 21
Technology Management (ii) Freedom of Enterprise: This freedom implies three things: a) Freedom of
enterprise, b) Freedom to use one's property c) Freedom of contract.
(iii) Freedom of Choice by Consumer: Every consumer enjoys a freedom of choice
of the commodities and services that he wishes to consume.
(iv) Profit Motive: In capitalism, it is the profit motive that governs business enterprises
and induces people to undertake any productive activity.
(v) Competition: Producers compete with one another to capture the consumer's
preferences or in selling their commodity as much as they can through advertisement,
price cuts, concessions, etc. Similarly, there is competition among workers for jobs.
(vi) Importance of Price System: Capitalism is said to be governed by price. It is the
price mechanism, which facilitates the functioning of capitalism. Demand and supply
are decided by prices. Rather, it is a two-way relationship in the sense that it is
price which decides demand and supply and it is demand and supply which decide
the price. So in capitalism there is a complex relationship between price, supply
and demand.
There is hardly any country that can be called capitalist in a true sense. Though countries
like the US, UK, Japan, South Korea etc., are called capitalist countries, they are actually
examples of mixed capitalist economy. Here, the means of production are owned by
private enterprises but the government directly controls and regulates the working of the
economy through its monetary and fiscal policies. Once, Microsoft had to split its business
into two companies because of government intervention. In the late 1970s, the American
government used the quota system to save its domestic automobile industry from the
threat of Japanese automobile industry. Not only America, but all capitalist countries
regulate business in the national interest. That's why we can call them mixed capitalist
economy.
Socialism
A Swedish king once remarked to his minister, "If one is not a socialist up to the age of
twenty-five, it shows he has no heart; but if he continues to be a socialist after the age of
25, he has no head." Socialism is based on the philosophy of equality. It believes in a
classless society. In socialism, people are supposed to work according to their capacity
and get according to their needs.
H. Morrison defined socialism as, "the important essentials of socialism are that all the
great industries and the land should be publicly or collectively owned, and that they
should be conducted (in conformity with a national economic plan) for the common good
instead of private profit."
General Features of Socialism
(i) Social Ownership of Means of Production: In socialism, the means of production
are the property of the state and not any of private individual. The profit goes to the
state exchequer.
(ii) No Private Enterprise: In socialism, production is to be initiated and conducted by
the state, which will pay wages and other costs and keep profits to itself. However,
in certain fields like agriculture, handicrafts and the cottage industry, co-operatives
are allowed.
(iii) Economic Planning: In socialism, the state assumes control of production and
22
distribution. It allocates the scarce resources in accordance with the central
 economic planning. Economic planning is closely associated with the erstwhile Technology Management
Soviet system and is presumed to ensure an efficient and optimum allocation of
resources in the national interest.
(iv) Classless Society: Socialism believes in a classless society. In a socialist state,
every individual enjoys equality of opportunity regardless of caste, creed, family
and religion.
(v) Consumer is not sovereign: Under socialism, the consumer does not enjoy sovereign
rights. It is the state which decides what to supply, how much to supply, how to
supply and at what price. So consumers do not have any choice in this respect.
After the October 1917 revolution, the Russians tried to establish a true socialist state.
They even abolished their currency but soon had to reintroduce money. China and
various other states like Poland, Romania, North Korea, Cuba, East Germany, etc., also
tried to establish socialism but failed. They have had to surrender to market forces.
Now, except North Korea, all other erstwhile communist countries have accepted the
importance of private entrepreneurship and are following the mixed system of economy.
Mixed Economy
A mixed economy is a combination of the two extremes socialism and capitalism. In a
mixed economy both the private and public sectors exist and work together in the national
interest. The chief features of a mixed economy are:
(i) Co- Existence of Public and Private Property: In a mixed economy, industries
of the country are classified into two categories. While industries in the infrastructure
and strategic sectors like mining, oils, steel, aluminium, metals, public transport,
defense, energy, space, etc., are under the control of the government, the private
sector is allowed to operate in the rest of the industries.
(ii) Price System and Government Directives: In a mixed economy, prices are fixed
or regulated by the government as well as based on market forces such as demand
and supply. In critical goods like oil, LPG and steel, the government follows administered
prices (as set by the government) and market forces decide the price of other goods.
Sometimes the government follows administered as well as market prices, where
entrepreneur are permitted to sell part of production at market prices and part of
the other portion of production to the government at the prices fixed by latter.
(iii) Government Regulates and Controls the Private Sector: Though the private
sector is permitted in a mixed economy, it is regulated and controlled by the State.
The State uses various measures like regulation, licences, permits and incentives to
regulate and to decide the flow and direction of private investment. The State uses
all these means so that private enterprises work in harmony with national priorities.
(iv) Consumers' sovereignty is protected: In a mixed economy, sovereignty of the
consumers is protected. Consumers are free to buy commodities of their choice,
and producers produce commodities of consumers choice. The govt. may control
the prices of certain essential commodities in the pubic interest, though. In fact, the
government protects the consumer from the exploitation by private entrepreneurs.
(v) Government Protects Labour Interest: In a mixed economy the government
protects the labour class and other weaker sections from exploitation by capitalists.
We thus see that in a mixed economy, private and public sectors operate in coordination
23
with each other, although the government regulates the private sector. Today, almost
Technology Management every country is a mixed economy. Either it is a mixed capitalist economy like USA and
UK, or it is mixed socialist economic like China and India.
Types of Economy on the Basis of Income
Economies can also be categorised on the basis of their levels of income, especially per
capita income. There are countries which have a very high per capita income such as
Singapore, Switzerland, Sweden, etc. On the other hand, there are countries where
people are dying of hunger. Even with in one country there is alarming disparity in terms
of development, usually termed dualism. Dualism refers to coexistence of the developed
and underdeveloped in a country's economy.
On the basis of per capita income, countries are classified as low income, middle income
and high income economies.
1. Low Income Economies: These economies have a very low level of per capita
income. All economies having a per capita GNP of $755 or less (in 2000) are
considered as low income countries.
2. Middle Income Economies: These economies are subdivided into lower middle
income economies having a per capita GNP between $756 and $ 2,995 (in 2000)
and upper middle income having a per capita GNP between $2996 and $ 9265 (in
2000.)
3. High Income Economies: These are countries having a per capita GNP of $9266
or above (in 2000).
Estimates of GNP per capita is calculated by converting GNP to U.S. dollars. These
estimates do not reveals the true story. The use of purchasing power parity (PPP) provides
a better comparison of average income. If we use PPP estimates of GNP per capita, we
find that income inequalities between developed and underdeveloped countries are
somewhat lower than those we observe on the basis of exchange rates as conversion
factors. For example, as in the above table in 2000, the Indias per capita income was
estimated at $598; in PPP terms it was estimated at $ 2840. This means that the goods
which cost $598 in India will cost $2840 in USA. In other words, having $598 in India is
equivalent to having $2840 in USA.
Table 1.2: GNP per Capita and PPP Estimate of GNP per Capita in
US Dollars (2000)

Country GNP GNP (PPP) GNP GNP (PPP)

/Region Per Capita Per Capita
$ Billion $ Billion Dollars Dollars
USA 9,646 9646 34,260 34,260
Japan 4,337 3,354 34,210 26,460
Germany 2,058 2,054 25,050 25,010
U.K. 1,464 1,407 24,500 23,550
China 1,065 4,966 840 3,940
Brazil 607 1,245 3,570 7,320
Mexico 498 864 5,080 8,810
India 471 2,432 460 2,390

Source: World Bank, World Development Report, 2002

24
Types of Economies on the Basis of Development Technology Management

Low and middle income countries are usually regarded as developing or underdeveloped
countries, and high income countries as developed countries. But this is not always true.
Countries like Kuwait, Iran, UAE, etc., fall in high-income countries but are considered
as developing countries.
In fact, there is a significant difference between growth and development. GDP is a
measure of economic growth which reveals about country's real output of goods and
services in terms of currency. But economic development is a much more comprehensive
concept. It implies progressive changes in the socio-economic structure of a country.
Economic development should generally entail a steady decline in agriculture's share in
GNP and a corresponding increase in the share of industries, trade, banking, construction,
and services. The process of development is far more extensive. Apart from rise in
output, it involves changes in the composition of the output as well as shift in the allocation
of productive resources so as to ensure social justice. It is thus quite obvious that growth
and development are not the same thing.
Measuring of Economic Development
Economic development is measured in four ways:
1. GNP: According to this, economic development is measured as an increase in the
economy's real national income over a long period of time. But GNP figures do not
reveal the costs to society from environmental pollution, industrialisation and
population growth. They tells us nothing about the distribution of income.
2. GNP per capita: Meier defines economic development as, "the process whereby
the real per capita income of a country increases over a long period of time. But
such an indicator doesn't mention any thing about the distribution of income, structure
of society, resource patterns, etc.
3. Welfare: According to Okun and Richardson, economic development is a "sustained,
secular improvement in material well being, which may be considered to be reflected
in an increasing flow of goods and services."
4. Social Indicators: Social indicators include health, food and nutrition, education,
literacy and skills, employment, working conditions, consumption of basic necessities,
transportation, housing, household amenities, clothing, recreation and entertainment,
social security, etc. All these indicators emphasise the quality of the process of
development.
Of all the above methods, GNP is the easiest to calculate. Organisations like UN use the
GNP method to measure development. But from the point of view of business decisions,
welfare and social indicators, as well as structure of the economy (as in the share of
services and industries in GNP) are of critical importance. Only on the basis of these
indicators can an organization forecast or create demand.
Developing economies are basically agrarian economies. In these economies, the services
and industrial sectors may have a large share in GDP as in India, but most of the population
is dependent on agriculture for its livelihood.
Developing economies are generally characterised by low GNP per capita. In India, this
was $471 in 2000 and there is widespread poverty. There is a scarcity of capital in
25
Technology Management developing economies. When the absolute income is high, the ability to save is high,
leading to higher capital formation.
On the other hand, in developing economies, formation of capital is low because of low
levels of income and sway of consumption. A developing economy is also characterised
by rapid population growth, low levels of productivity, technological backwardness, high
level of unemployment and underemployment, lower level of human well being and wide
income inequalities.
On the other hand there are developing economies, which have witnessed rapid
industrialisation and rapid growth in GNP over the last 20 years. These are the new Asian
tigers, i.e., Hong Kong, South Korea, Singapore, Taiwan, Malaysia, Thailand etc. The
above-mentioned countries are affluent and their GNP is no lesser than some of the developed
nations. Because of their strategic location and core competency in specific industries,
they are likely to play a decisive role in the global economy in the years to come.
Some economies are referred to as transition economies. These are former centralized/
socialist economies, which are moving to market economies such as Russia, China,
eastern European nations, and India. These transition economies are very big in size in
every respect. As they are the largest markets in terms of PPP, they are the cheapest
manufacturing and services producing hub, and have substantial and, in few cases, the
largest natural resources. From the angles of both demand and supply, they are very rich
and will be the playground for all global organizations in the coming era.
The level of income may be low in these economies but even then they are a big market.
Only thing is that organizations have to develop products that these economies can afford.
Like HLL developed an ice cream cone worth Rs. 5 after a year of research, which
soon became a hot selling brand.
The political leadership has to take into consideration needs (as arising from geographic,
climactic or living conditions) for technological progress in society. The long dry months
that most regions of India had to deal with led to numerous innovations. Today Indians
are dictating terms to global IT industry. NRI venture capitalists are well established in
the Silicon Valley. IT firms like TCS, INFOSYS and WIPRO are global brands.
India's nuclear programme really took off during the tenure of Indira Gandhi. In
international geopolitics might is always right, so India aimed to project its force through
nuclearisation of weapons. At the same time all Indian politicians pleaded for global
nuclear disarmament from the international forums. India was not ready for nuclear
blackmailing. Besides pursuing the nuclear energy option, India has also boosted research
in alternative sources of energy. Several hundred-wind power generation farms have
been established. Within next ten years India may emerge as top five countries in the
world in wind power generation. India may rank only second to China in biogas generation.
India was one of the few countries to recognize the potential of biotechnology in 1982.
After 25 years the biotechnology industry has seen an unprecedented boom in India.
The business has crossed more than a billion dollars. Pharma companies like Reddy's,
Cipla, Ranbaxy are giving a run for their money to global pharma majors. A few small
drug companies were producing a minor range of Ayurvedic and herbal medicines in
1947. Today India is competing with China in marketing herbal drugs. But still there is a
huge gap. Ayurvedic formulations are in high demand.
The most amazing revolution in India after Independence is in telecommunications. In
1947 it was considered a miracle to get a long distance trunk call booked within half an
hour. In 1957, the waiting list for landline telephone connections had millions of names.
26
In 1977 there was uncertainty over colour television. The picture changed after the
dynamic Rajiv Gandhi took over the prime ministership in 1984. He brought in Sam Technology Management
Pitroda, a visionary and a go getter personality. Post Pitroda India witnessed a sea
change in telecom sector, which was further accelerated by Dayanidhi Maran and D.
Raja the later on telecom ministers. Global telecom giants consider India as one of the
top five fastest growing market for mobile telephony. The number of mobile handsets in
India may soon cross hundred millions. Mobiles are now penetrating deeper in rural
India. India's experiment with e-chaupal met with stupendous success from the farmers
and villagers. India's remote sensing satellite programme and the INSAT series of satellites
have shown to the world that we have finally arrived as equals to the superpowers. The
launching of a powerful Military satellite would be a force multiplier for Indian defence
forces. Future wars would be fought electronically and in cyberspace. But as compared
to 1947, India is fully prepared for any eventuality. India's all round scientific progress
was possible because of service and sacrifices of thousands of scientists and technicians
who worked with meagre salaries. Indian government has announced a large number of
incentives to attract young students to science, technology and engineering. The future
of Indian science, 62 years after Independence is very bright. That's why many IITians
are returning from abroad to serve their country. The brain drain of the past would be
brain grain of the future.
Today Indians are dictating terms to global IT industry. NRI venture capitalists are well
established in the Silicon Valley. IT firms like TCS, INFOSYS and WIPRO are global
brands. There is a huge demand for skilled Indian IT professionals. This is natural for
our country because we gifted the game of Chess and the concept of Zero to the world.
India's nuclear programme really took off during the tenure of Indira Gandhi. It is further
accelarated by PM Manmohan Singhs Indo-US nuclear deal in 2008, in international
geopolitics might is always right, so India aimed to project its force through nuclearisation
of weapons. At the same time all Indian politicians pleaded for global nuclear disarmament
from the international forums. India was not ready for nuclear blackmailing. Besides
pursuing the nuclear energy option, India has also boosted research in alternative sources
of energy. Several hundred-wind power generation farms have been established. Within
next ten years India may emerge as top five countries in the world in wind power
generation. India may rank only second to China in biogas generation. India was one of
the few countries to recognise the potential of biotechnology.
The biotechnology industry has seen an unprecedented boom in India. Today India is
competing with China in marketing herbal drugs. But still there is a huge gap. Ayurvedic
formulations are in high demand.

1.6 METHODS AND TECHNIQUES FOR ANALYSIS:

STEPS INVOLVED
1.6.1 Environmental Analysis
Collection of Information
Analysis is done by means of a search of verbal and written information, spying,
forecasting and formal studies and information system.
At first there is the gathering of verbal information, the sources of verbal information
are:
1. Media such as radio and television
2. The firm's employees such as peers, subordinates and supervisors. 27
Technology Management Other sources of verbal information outside the firm are:- Customers of the enterprise,
persons in industry channel (such as wholesalers, brokers, distributors, etc.), suppliers
doing business with the firm, competitors and their employees, financial executives such
as bankers, stockholders, and stock analysts, consultants and the government.
Besides verbal sources, information can be gathered by reading. Information about the
environment is readily available in newspapers, trade journals, industry newsletters,
journals and publications, government reports, reports of various marketing research
agencies such as Gallup, ORG, etc. It is said (is it not true??) that behind every business
activity there is one government department and one association. This department or
association publishes information related to business on regular intervals.
The second solution to environmental analysis is to design a Management Information
System. A formal MIS gives quick relevant information to the decision makers, which
helps a lot in making timely decisions. Beside this, information regarding competitors can
be can be gathered through Corporate Intelligence and spying.
(a) Corporate Intelligence: Corporate Intelligence (CI) can be described "as a
technique of adopting industry/research expertise to analyse the information available
on competition from public sources and to draw conclusion based on this data. " A
typical CI activity involves collection, organization, analysis and utilisation of business-
related data of competitors to make informed decisions. Some of the major
companies that use CI include:- Microsoft, Motorola, P&G, HP, GE, IBM and
Xerox.
(b) Spying: Corporate espionage can be defined as 'spying' on business competitors
to acquire proprietary information such as product design, research projects,
marketing plan, trade secret, source code for new software, intellectual property
and research information and other business strategies. In 1996 the US government
passed the Economic Espionage Act to restrict espionage.
Once GM alleged that Volkswagen stole its trade secret by luring its head of production.
GM won case against Volkswagen and obtained a hefty compensation.
Similarly, in 1943, a P&G employee reportedly bribed an employee of Levers Brothers
to steal a bar of soap that was under development.
The approach of analysing the environment is formal forecasting and there are various
techniques to it. At present various computerized models are available to make forecasting
easy and cheap. Some forecasting techniques are as follows:
Deciding Priorities
Various changes take place in the environment and it is difficult, cumbersome and a
costly affair to keep a regular eye on every aspect of these changes. So it is essential for
a strategist to rate the environmental factors on the basis of criticality and then invest
time and resources in environmental analysis. The Nine-cell Matrix is one method of
deciding priorities regarding environmental issues.
The issues that are critical need maximum attention of the management and quick action
or preparation. On the other hand issues of low priority need just monitoring at regular
intervals. Issues of high priority need attention standby plans in case and also need
regular observation.
Further, The issues of Environmental Analysis can be divided into Environmental evolution,
28 and the process of environmental analysis.
 Technology Management
Impact on Business

Probability of Actions
High Medium Low

High Medium Low

Critical High Priority Low Priority

High Priority High Priority Low Priority

To be Watched Low Priority Low Priority

Identifying High Priority Environmental Sector

Figure 1.3: Nine-cell Matrix Method of Deciding Priorities

Environmental Evolution
There are three components that are useful to describe changes in the environmental
segments:
l Type of change
l Forces driving change
l Type of future evolution.
Changes in the micro environment may be systematic or discontinuous. Gradual changes,
changes in a phased manner, or those that are predictable are systematic changes. As
after liberalization, a change in the ratio of youth in population of India, rise in the income
of middle class and specially of the youth can be seen as systematic change.
Unpredictable or sudden changes are discontinuous, like the twin tower terror attacks in
the US and its aftermath.
Sometimes changes in one segment may be the result of driving forces in another segment.
The driving force behind the acceptance of packaged food in India could be because of
the purchasing power of the middle class, or because more women are working, or it
could be more awareness among the youth via the mass media. These driving forces
constantly interact with each other.
Environmental evolution can be completely predictable and sometimes it is dependent
upon actions of the firm or other entities in the environment.
Process of Environmental Analysis
The process of environmental analysis can be divided into four parts:
l Scanning the environment to detect warning signals
l Monitoring specific environmental trends
l Forecasting the direction of future environmental changes and
l Assessing current and future environmental changes for their organizational
implications.
(a) Scanning: Environmental scanning is aimed at alerting the organization to potentially
significant external impingement before it has fully formed or crystallised. Successful
environmental scanning draws attention to possible changes and events well before
they occur, allowing time for suitable action. Scanning frequently detects
environmental changes that are already in an advanced stage.
29
Technology Management Scanning is the most ill-structured and ambiguous environmental analysis activity.
The sources of data are many and varied. Moreover, a common feature of scanning
is that early signals often show up in unexpected places. A fundamental challenge
for the analyst in scanning is to make sense of vague, ambiguous and unconnected
data and to infuse meaning into it.
(b) Monitoring: Monitoring involves following the signals or indicators unearthed during
environmental scanning. In monitoring the data the search is focused and much
more systematic than in scanning. By focused, it is meant that the analyst is guided
by a priori premonition. Systematic refers to the notion that the analyst has the
general sense of the pattern and he is looking for and collects data regarding the
evolution of the pattern.
As monitoring progresses, the data frequently moves from the imprecise and
unbounded to reasonably specific and focused output. The output or monitoring are
three fold:
(i) A specific description of environmental patterns to be forecast;
(ii) Identification of trends for further monitoring and;
(iii) Identification of patterns requiring further scanning.
(c) Assessment: Assessment involves identifying and evaluating how and why current
and projected environmental changes will affect the strategic management of an
organization. In assessment, the frame of reference moves from understanding the
environment - the focus of scanning, monitoring and forecasting - to identifying
what that understanding of environment means for the organization. Assessment
thus reveals about the implication of environment change on the organization.
There is not always a linear relationship between scanning, monitoring, forecasting
and assessment. If some trends are disclosed in the scanning process, an organization
can directly jump to find out how it is going to influence itsself. Even obtaining the
assessment of the external environment factor, an organization may continuously
monitor and forecast the factors regarding its future development.
So sometimes assessment monitoring and forecasting proceeds simultaneously. A
good strategist always keeps an eye on developments in the environment. Like
when Vijay Mallaya came to know that there was some internal problem within the
Chhabria (owners of Shaw Wallace) family, he started monitoring the same. And
when he found a suitable time, he purchased his arch-rival, Shaw Wallace, and
became second largest brewery of the world.
(d) Forecasting: Forecasting is concerned with the development of plausible projections
of directions, scope, speed and intensity of environment change, and to lay out the
evolutionary path of anticipatory change. There are a number of key analytical
tasks and outputs involved in forecasting. The first concern is the untangling of
forces that drive the evolution of a trend.
The second concern is understanding the nature of the evolutionary path, that is,
whether the change is a fad, or of some limited duration, or cyclical or systematic
in character.
The third concern more or less clearly delineates the evolutionary path or paths
leading to projections and alternatives futures. Forecasting is well focused and is a
30 much more deductive and complex activity.
Information about the future is essential for planning. All managerial decisions are future Technology Management
oriented. Decisions like planning and scheduling production, purchase of raw material,
acquisition of finance, decision regarding product portfolio, distribution and advertising
strategy, pricing, recruitment of human resource, etc., all require forecasting of the external
environment.
Forecasting is an important management activity. Major decisions in large businesses
are almost always based on forecasts of some type. In some cases the forecast may be
a little more than an intuitive assessment of the future by those involved in decision
making. In other circumstances, the forecast may have been generated by the firm's
own economists, provided by consultants specializing in forecasting, or based upon
information provided by government agencies.
Following are some techniques of environmental forecasting:
(i) Scenario Planning: Scenario planning helps understand the environment-specifically
the microenvironment. Scenarios includes stories about what the future environment
might hold and how a firm might respond. Building scenarios is an attempt to identify
a set of diverse alternative futures as a means of preparing managers for unavoidable
uncertainties. Scenario planning not only predicts how things will turn out, it also
attempts to explain what forces will shape the future. Like a play, scenarios explain
developments leading to an ending.
Paul Shristava suggests the following steps to develop a scenario (Paul Shristava,
Strategic Management, Cincinnati, South-Western Publishing Co. 1994, Pg-34):
1. Identify strategic environment issues that are likely to affect the industry/
firm. Prioritise these issues in their order of importance to the firm.
2. Select the most important issues as the focus for scenario development. List
the organizational assumptions with respect to these issues and identify the
possible variations in these assumptions.
3. Prepare a preliminary description of these issues and how they evolved.
Include the key economic, social, political and cultural influences that affect
them. Do this with the help of industry experts.
4. Draw out the implications of the issue for organizational performance. What
has the organization done and what can it do to cope with the issues? Identify
those variables shaping the issue that the management can control and partially
control. Also identify the variable over which management has no control.
5. Develop a detailed description of the future in the form of scenarios. Scenarios
are constructed under a worst case, best case, and most likely case set of
assumptions. Draw out the implications of these scenarios for future
performance of the company.
6. Discuss the scenarios with the top management and define them.
7. Develop contingency action plans for each scenario.
(ii) Issue Analysis: An issue is a factor (internal/external like political, social or economic
trends, or even controversies) that if it develops could have a significant impact on
the firm. After identifying the issues, a probability is assessed with respect to its
possible occurrence and weight is given to its expected effect. The issues are
brought to the attention of the management so proactive action may be taken to 31
Technology Management deal with the issues. Like, for a cigarette manufacturer there are issues like anti-
smoking campaigns to be dealt with. Similarly, for Wal Mart and the Pantaloon
Retail Chain in India, FDI in retail is an issue that needs to be looked into.
(iii) Expert Opinion: A collective judgment of the experts can be an important source
of information. In many cases forecasts are made almost entirely on the basis of
personal insights of key decision makers. The process may involve managers being
asked to develop projections based on their assessment of the environment, or a
sales person can be asked to forecast the sale on the basis of their past experiences.
Or some consultant may be employed to develop forecasts based on their knowledge
of the industry.
(iv) Delphi Method: Under the Delphi method, experts are provided information on
estimates of forecasts of other experts along with the underlying assumption. This
has a panel of experts and the estimates of one expert are sent to another expert
who can revise estimates in light of forecasts made by other experts.
The process goes on until the experts reach a consensus. This is an expensive
technique as estimates of experts are repeatedly sent to each other until they reach
a consensus.
(v) Market Experiments: To conduct market experimentation a firm selects a test
market. This market consists of several lists. Once the market has been selected,
the experiment may incorporate a number of features. The selected markets have
some similar features, viz. population, income, income levels, cultural and social
background, occupational distribution, choices, and preferences of consumers.
Market experiments are then conducted by changing prices, ad spend, expenditure
and other controllable variables in the demand function under the assumption that
other things remain the same. The controllable variables can be changed over time
and the consequent changes are recorded. Based on these, the future is predicted.
(vi) Survey: Under this, surveys are conducted to collect information about consumers'
intentions and their future purchase plans. This method includes:
Survey of potential consumers to elicit information on their intentions and plan. Useful
data for forecasting can be obtained from surveys of consumers' plans. But the value
of the data made available after this is dependent on the skills of those who execute
the survey. Meaningful surveys require careful attention to each phase of the process.
Questions must be precisely worded to avoid ambiguity. The survey sample must be
properly selected so that responses will be representative of all customers.
Besides the ones above, there are some statistical techniques that are used for
forecasting:
(vii) Time Series Analysis: The focus of time series analysis is on indentifying the
components of change in the data. Traditionally these components are divided into
four categories:
1. Trend
2. Seasonality
3. Cyclical Patterns
4. Random Fluctuations.
A trend is a long-term increase or decrease in the variables. For example, time
32
series of human population in India exhibits an upward trend, while the trend for
 endangered species is downward. The seasonal components represent changes Technology Management
that occur at regular intervals. A large increase in the sales of pullovers in the fall
and early winter could be an example. Cyclical patterns are defined as sustained
periods of high value followed by low values. Variation in a variable that doesn't
follow any discernable pattern is due to random fluctuations.
(viii) Trend Projections: This approach is based on the assumption that there is an
identifiable trend in a time series of data. Trend projections are used under the
assumption that the factors responsible for the past trends in the variable to be
projected will continue to play their part in future in the same manner and to the
same extent in magnitude and direction. In projecting demand for a product, the
trend method is applied to time series data on sales. There are three techniques of
trend projections on the basis of the time series data:
1. Graphical Method
2. Fitting trend equation or least square method
3. Box Jenkins Method.
1. Graphical Method: Under this method annual data on sales are plotted on a
graph paper and a line is drawn through the plotted point. Then a free line is
so drawn that the total distance between the line and the points is minimum.
Though this method is very simple and least expensive, the projections made
through this method are not very reliable. The reason is that the extension of
the trend line involves subjectivity and personal biases of the analyst.
2. Fitting Trend Equation (Least Square Method): Under this method a trend
line (or curve) is fitted to the time series sales data with the aid of statistical
techniques. The form of the trend equation can be fitted to the time series data
and is determined by plotting the sales data or by trying different forms of trend
equations for the best fit. Time series data may show various kinds of trends.
Some common types of trend equations are linear exponential and quadratic.
Linear Trend: Suppose an analyst determines that a firm's sales will change
by the same amount between two periods, then a straight line trend equation
of the following form is fitted:
S = a + bT
Where S = annual sales, T = time (years), a and b are constants. The parameter
b gives the measures of annual increase in sales.
Exponential Trend: If sales are increased by a constant percent each period
then the relationship can be expressed mathematically as: -
Y = a + bT + cT2
In this equation a, b and c are constants, Y is sales, T is time and C = 2.718.
3. Box Jenkins Method: It is used only for short-term projections. This method
is suitable for forecasting demand with only stationary time series sales data.
Stationary time series is one which does not reveal a long-term trend. Large
increase in sales for the fourth quarter is a characteristic of certain industries.
Significant volume of sales of electronic companies, paint companies or garments
companies happen in the Diwali month in India. Similarly, sales of coolers drop in the 33
Technology Management month of winter while demand for accountants' services increases in the first quarter as
income tax deadlines approach. The Box Jenkins Method is used in the cases mentioned
above, where there are monthly or seasonal variations that recur with some degree of
regularity. The Box Jenkins technique is used for predicting demand where time series
sales data reveal these kind of seasonal variations.
The First step in the Box Jenkins approach is to eliminate trend from the time series
data. Trend is eliminated by first taking the difference of time series data, i.e., subtracting
the observed value of one period from the observed value of the preceding year. After a
trend is eliminated, stationary time series is created.
The second step is to check whether there is seasonality in stationary time series. If a
certain pattern is found to repeat over time, there is a seasonality in the stationary time
series.
The third step involves use of models to predict the sales in the intended period.
Exponential Smoothing: Exponential smoothing is based on the fact that the more recent
observations will contain a more accurate information about the future than those at the
beginning of the series. For example, the sales history of the last three months may be
more relevant in forecasting future sales than data for sales over the past ten years.
Exponential smoothing is a technique of the time series forecasting that gives greater
weight to more recent observations. The first step is to choose a smoothing constant a,
where 0 < a < 1.0. If there are n observations in a time series, the forecast for the next
period (i.e., n + 1) is calculated as weighted average of the observed value of the series
at period n and the forecasted value for the same period.
Fn+1 = aXn + (1 a) Fn
Where (Fn+1) is the forecast value for the next period, (Xn) is the observed value for the
last observation and (Fn) is a forecast of the value for the last period in the time series.
Benefits of Environmental Analysis
1. Environmental analysis gives an idea of organization's environment.
2. Environmental analysis gives a brief about competitors.
3. Environmental analysis tells us about opportunities to reap profits.
4. Environmental analysis gives details about threats in the environment.
5. Environmental analysis keeps the manager informed and alert.
6. Business is all about making the right decision at the right time. Without proper
environmental analysis, the right decision can't be made.
7. Environmental analysis helps in predicting the future.
8. Environmental analysis helps in suitable modification of strategies, as and when
required.
Limitations of Environmental Analysis
1. Today the environment is turbulent and dynamic and it is difficult to forecast or
predict the environment.
2. Business and technology environment is global and any development in any part of
34
the world can influence the business. Even a small political move can have a drastic
 impact, which is very difficult to scan and assess. A sudden disintegration of USSR Technology Management
had very adverse impact on many exporters in India. A sudden attack of Al Qaeda
on the Twin Towers in the US resulted in the hike of global petroleum prices. After
signing the WTO, all of a sudden the toy market of India was captured by Chinese
products. Today it is extremely difficult to predict the external environment.
3. The Effectiveness of technology and environmental analysis depends upon how it
is practiced, i.e., whether it is a systematic approach, ad hoc or processed. Under
a systematic approach, information for environmental scanning is collected, scanned
and monitored on a continuous basis and forecast and is assessed for the relevant
factor. In an ad hoc approach, an organization conducts special surveys and studies
to deal with specific environmental issues from time to time. In a processed form
approach, an organization uses information in a processed form, available from
different sources, both inside and outside the organization. For effectiveness, an
organization should use the combination of these approaches instead of just following
the tried formulas, because all have their importance according to requirement.
Too much reliance is often placed on the information collected through environmental
scanning. When there is overloading of information, one is likely to get lost and become
inactive-typical of paralysis through analysis syndrome.
1.6.2 Technological Analysis
Science and technology now make up a sizeable slice of economies, a trend that is going
to continue. The managers explore the trends within this trend, which technologies in
particular are gaining ground and how are these changes affecting productivity and
competitiveness. And the managers do this with unprecedented performance. The
managers provide information, insight, intelligence, analysis, and expert advice on emerging
topics across the fields of quantum technologies; micro and nanotechnology; photonics;
microwaves & wireless; computing, including mobile and pervasive computing and grid
technology; communication technologies- light wave communications and networks,
wireless communications including terrestrial and satellite communications, Ultra Wide
Band, Wireless Personal Area Networks, Wireless Sensor Networks; intelligent
technologies and e-systems as e-commerce/B2B, e-procurement, e-government, e-
learning; security; advanced materials; energy; transport; aerospace - including SatCom,
GNSS/Galileo, remote sensing, small satellite technology (nano & pico satellites); and
nuclear science. The technological analysis and assessment should contain the following
steps to deliver services and assistance on:
Technology Assessment
Analysis and evaluation of technologies - determining their value: the manager conducting
assessment performs in-depth multi-disciplinary analyses of a technology or specific
technology development for the industry, academia and public policy related organizations
in order to provide evidence of its effectiveness including assessment of its strengths,
weaknesses, opportunities and threats, cost and cost-effectiveness, commercial logic,
early indications of the probable impacts and unexpected long-term consequences,
comparison with alternative & competing technologies to solve the same problem, safety,
ethical and legal implications.
Analysis of System Requirements
The next method is to have a comprehensive description and definition of requirements
in a specific technology scenario or project would be carried out as well as the assessment
of existing technological solutions. 35
Technology Management Analysis of Technology Applications
The next step is to conduct an exploratory work and analysis of industry applications and
commercial logic for emerging technologies: marketability analysis of technology advances
and research, identification of research with immediate and/or short term marketability.
Diversification
The next step is conceiving and developing strategies of diversification into new product
markets opened by technological innovations. There are studies on adapting existing
technology to new-including unforeseen-applications, and to explore if a technology is
able to penetrate other applications as well and how to enlarge the application/service
horizon associated to the introduction of new technology paradigms. There is also need
to conduct exploration and assessment of new R&D applications and of their synergies
& complementarities with related technologies and applications.
Technology Transfer
Another important steps are counsel and assistance in mediation for technology
commercialization. Research and analysis/evaluation of available and suitable technology,
research and analysis/evaluation of potential commercial parties to receive the technology,
nurturing relationships, assistance in negotiation agreements, Analysis of trials and
necessary adjustments of the technology to the commercial recipients, Analysis of training
needs to absorb the technology, Analysis of collaborative R&D opportunities, Partners
search, Information brokerage, including scanning of technical information sources,
Dissemination - of technology produced, Advice on spin-off creation, and Counsel on
licensing and patenting matters.
Techno-economic Analyses
The step is to conduct studies to assess and optimize technology processes under techno-
economic aspects with view to industrial requirements.
Competitive Intelligence, Foresight and Mapping for Future Studies
Then it is important to provide accurate and timely intelligence to anticipate technical
disruptions, changing customer needs, and potential competitor actions. And develop
special forecasting studies - Future studies, i. e., analysis of key long-term concerns and
emerging issues, development of predictive scenarios for technology, market prices and
costs, construction of roadmaps.
Exploitation of Scientific and Technological Research Results: Taking
a R&D Project or Technology into the Marketplace
Then the technology analyst/manager looks at the research results and plans, work with
the research team to spot opportunities for commercialization, identify the appropriate
path and mobilize the support measures to make it happen. This includes technology
transfer and commercialization of the scientific knowledge and technology produced
analysis of potential markets, business plan development, analysis of training needs,
intellectual property issues, and marketing through dissemination & communication
activities including building key messages, flash sheets, technical reports, whitepapers,
newsletters and circulating them, developing presentations, conferences and workshops
organization, web-based seminars, e-briefings, and webcasts. He also studies for the
creation of pre-start-up/spin-offs and early stage technology companies. He also studies
on socio-economic aspects of technology developed/planned.
36
Information Brokerage: Researching, Analyzing and Delivering Specific Technology Management
Information on Behalf of a Client
Information brokerage is a new exciting field which arises fundamentally from the advent
of the Internet as an amazing source of information. Closely related to market and strategic
concerns since it deals with the vital thing of making informed decisions, information
brokerage addresses the needs of obtaining factual, relevant and trusted information, tailored
to specific needs and requirements, and in a short timeframe. But as wonderful as the
Internet is, there is no guarantee that the facts found on the Internet are right, that the data
are correct, or that the papers and reports published, cited or referenced have been reviewed
for accuracy and quality. Knowing where to look for information and how to evaluate
information sources are survival skills for cyberspace, and we have these skills. Furthermore,
analyzing search results, extracting and compiling relevant data, making related searches,
and organizing everything to deliver the real appropriate context for the topic at hand
requires skills, strong professional knowledge and scientific background, and again we
fulfill these conditions. The manager obtains relevant factual information by scanning a
variety of sources, including Internet, literature, databases, and making interviews, always
carefully evaluating source trustworthiness; we perform an in-depth analysis; extract and
compile relevant data; make related searches; and organize everything to produce the final
written material in a clear and concise way. He performs searches of new research findings
and trends in research, new developments in technologies and key findings in the underlying
science, funding, new product commercialization, regulations and policies affecting the
development and commercialization of emerging technologies, market issues, - and he
deliver both comprehensive studies on the state of the art and sharply focused pictures of
research in a field at a critical point in its development. It is the responsibility of the manager
to turn information into knowledge.
Market Studies
The technology analyst/manager conducts research and analysis of developments in the
marketplace; research and analysis of emerging products, markets, technologies and
applications; analysis of new suppliers and players; trends in competition, pricing, and
strategic directions.
Feasibility Studies
This step involves analysis for planned products, services and projects, products and
services positioning.
User Requirements Analysis
This step involves understanding user requirements is critical to obtain successful systems
and products. User requirements analysis can identify capabilities, content, and functionality
required by prospective users of the system. The benefits include increased productivity,
enhanced quality of work, reductions in support and training costs, and avoiding the
increased cost of potential design alterations done late in the development process. The
analyst provides assistance in identifying and creating a system design that really reflects
the needs of the end users: capturing, analysing and specifying information on user needs,
using a combination of state of the art methodologies including one-to-one interviews,
focus groups, surveys, scenarios and use cases, future workshops, evaluating a competitor
system, among other methodologies, for user needs identification; brainstorming,
prototypes, and others for envision & evaluating; prioritization, criteria setting, etc for
requirements specification.

37
Technology Management Strategic Planning
The manager provides support in establishing long-term goals, laying out strategies to
achieve them, and identifying key intermediate objectives along the way, analyse the
capabilities to reach them, and work on performance evaluation, and formulate technology
strategies for product development.
Business Development Consultancy
Then the next very important point is the role of the top leader/manager of the
organisation, who delivers advice and counsels upon critical issues to support business
plans, transforming business, and to help drive the business towards a position of
leadership. He investigates the business logic of high-tech/high-risk projects, and devises
business plans to ensure continuity in delivering great science and technology, faster,
while generating sales.
Marketing Campaign Development
In this step the manager develops strategy for raising the brand profile even higher,
delivering the plan that will raise awareness, create demand and generate sales. He
defines and executes winning technology marketing strategies, including support in ad
placement efforts, positioning, messaging, conference and workshop participation,
organization of workshops and industry briefings, and development of presentations. It is
also the duty of the manager to provide the full range of dissemination & communication
activities including messaging managing the delivery of marketing messages that
communicate highly technical content in a concise, compelling manner, building flash
sheets, technical reports, press releases, whitepapers, newsletters, and circulate them
among the target market through selected channels. It is well known that Internet is
having a paramount impact on the practice of marketing in both the research and high-tech
environments. The manager needs to deliver innovative web-based marketing and
dissemination services as e-briefings, webcasts, webminars, and B2B marketing techniques.
Risk Analysis
The next important step is to conduct technology/business risk assessment. The manager
needs to identify technology/business risks associated with concept scope, estimate their
probability of occurrence, estimate the project impact of each risk, and create a risk
mitigation, monitoring and management plan RM3.
Mergers and Acquisition of Firms Advisory
This step includes partner search and attraction, negotiations brokering, analysis/creation
of technical, cultural and management balance, partnership/merger of equals' creations.
Technical Due Diligence
This step includes the measurement of value and performance of science & technology
associated with a firm. The manager gathers and analyzes information to provide a
thorough understanding of a firm's technological & scientific value - the full ensemble of
technical and knowledge assets that account for a part of a firm's value. Analysis of
drivers & performance and identification of the critical information to manage a company
and value its shares: assessment of the underlying science and technology and its potential,
intellectual property issues; market potential; strategy; risks; intangible assets; analysis
of the hidden value of firms people, products, ideas, reputation and research; and any
other information needed to provide a corporate performance measurement.
38
Financial Due Diligence Technology Management

This step includes the analysis and assessment of the financial, management and
operational conditions of a firm, organisation or project.
Policy Studies and Analyses
This step includes analysis of public policy issues related to scientific and technological
change.
Technology Reports
Then the technology analyst prepares study reports providing all relevant and powerful
information about a specific technology topic, as well as its business and management
aspects surrounding it. The reports can contain technology tutorials, in-depth technology
status information, application analysis, commercial logic analysis, marketability prospects,
analysis of players and their strategies, facts and figures, worldwide context examination,
forecasts, opportunities, weaknesses, risks, regulatory issues, and all the specific
information required to gain a thorough understanding of the technology value, invest,
make strategic decisions and ensure productivity gains.
Development of Educational and Promotional/Marketing Material
It is also the duty of the technology analyst to ensure development of technical information
documents, tutorials on latest advances and rapidly breaking areas of research and
development, communication/documentation, presentations, publications, search of
reference material, editorial/publishing work, and web-based activities to disseminate
knowledge/technology produced. The management should also endeavour for the
development of supplements and whitepapers for use as internal sales tools and for
distribution to the broader market for education and product positioning purposes.
Education and Training
It is the duty of the organisation to take necessary education and training initiatives with
the introduction of any new technology or equipment or machinery. Sometimes, it is
pertinent to provide training courses for research managers, investors, industrial executives
and potential users of advanced technology; CDs, and information delivered to the desktop
through e-learning on-line tools.
Think Forward and Empower your Business
The next important step is to think forward and empowering the business by providing
benchmark research, insightful analysis, forecast, incisive advice, and all the required
key information to invest, make strategic decisions that create long-term value, and
ensure productivity gains. The managers need to get thorough understanding of market
applications and its viability, of technology developments, industry participants and
government policies. The managers need to convert information into usable knowledge,
and excel at delivering analyses and further follow up of action.
Select the Strategic Methodology
The manager should be committed to provide cost effective, high standards. Market,
technology, and any other specific requirements are analyzed rigorously, accessing and
efficiently analysing all critical sources and players involved, making intelligent interviews,
and applying specific methodologies for each case using a rigorous approach. Forecasts
are derived from state of the art rigorous forecasting techniques. The technology analyst
39
Technology Management combines demonstrated scientific and technology strengths with those of strategic thinking,
management, business, and social sciences to develop a new spectrum of solutions for
contemporary engineering, technology, and business problems. He is able to assess and
analyze the multi- disciplinary, inter- disciplinary, and trans - disciplinary aspects of a problem.
Build Trust
The manager should be equipped with innovative and aggressive programmes, as he is
uniquely positioned to provide solutions performing at top hierarchy, thus building trust
regarding the new technology adopted or to be adopted in the organisation.

Check Your Progress

Write a study note on the scope, components and overview of technology management.

1.7 LET US SUM UP

Technology Management is rapidly emerging as the major challenge of the coming
decades. As the technology age moves forward with a high speed characterized by
rapid changes, the leaders of technology are distinguishing themselves from those that
fall behind, by developing and implementing innovative approaches to managing technology.
The line of demarcation between success and failure is getting sharper and sharper. It is
utmost necessary to run with the global race of advancement and innovation in every
field of technology. Some nonprofit leaders will tell you that money and time are the two
biggest barriers to technology adoption. But all the money and time in the world won't
guarantee the success of a technology initiative. To introduce any new technology in
your organization successfully, you'll need to foster the right culture in your organization.
The three most important factors in successfully managing technology change are: people,
people, and people. While every technology change has its own unique technological
challenges, the people aspects are universal. People will always react to and be an
integral part of managing any change successfully in an organization. Years of working
experience can be synthesized in the strategy that the best practices around managing
technology change successfully is to have right focus on people before, during, and after
a technology change.
Every business operates in an environment and a business unit has its own environment.
A change in environment provides opportunities to some and threat to others. The
Environment is complex, dynamic, multifaceted, and has a far reaching impact. The
impact of an environmental trend often differs significantly for different firms within the
same industry. The general environment usually holds both opportunities for, and threat
to, expansion. Development in the general environment changes competitive battle line,
and many developments in the general environment are difficult to predict with any
degree of accuracy, while others are readily predictable.
The environment, which influences a business, can be divided into three types:
l Internal Environment
l Macro Environment (General Environment)
l Micro Environment (Relevant Environment, Competitive Environment)
Internal Environment is all about Culture and Value System, Mission and Objectives,
40 Management Structure and Nature, and Human Resources.
Macro Environment deals with the Political Environment, Regulatory and Legal Technology Management
Environment, Demographic, Socio-culture, Technological, Global Environment, Economic
Environment, National Competitive Advantage, etc.
Micro Environment analysis deals with the Five Forces of Competition, the Sixth Force,
Marketing Intermediaries, Financial Institution, Strategic Group, Critical Success Factors
(CSFs), Driving Force, Industry Life Cycle Analysis.
There are various techniques of analysing the environment. The first step is collection of
information in the verbal and written forms. There can be various sources of information
such as radio and television, the firm's employees such as peers, subordinates, and
supervisors, Corporate Intelligence, Spying etc.
The process of environmental analysis includes steps like Scanning, Monitoring,
Forecasting and Assessment. For forecasting the changes in environment, there are
many techniques such as Delphi Technique, Survey Method, Trend Analysis, etc.
But despite all the techniques, both subjective and objective environmental forecasting
have their own limitations.

1.8 KEY TERMS

Technology: Technology is knowledge of using tools and machines to do tasks more
efficiently.
Technology Management: Technology management can also be defined as the integrated
planning, design, optimization, operation and control of technological products, processes
and services, a better definition would be the management of the use of technology for
human advantage.
Technoware: It consists of tools and facilities. It also consists of equipment, machinery,
vehicles, physical facilities, instrumental devices, structures and factories.
Humanware: It consists of knowledge, skill, wisdom, expertise, proficiency, creativity,
diligence, dexterity, ingenuity and so on.
Infoware: It consists of all kinds of designs, observations etc.
Organware: It consists of allocations, systemizations, organisations, network
communications, groupings and all other aspects of managerial practice. When all the
above components interact with each other the phenomenon of technology becomes a
reality.
Strategic Planning: The manager provides support in establishing long-term goals, laying
out strategies to achieve them, and identifying key intermediate objectives along the
way, analyze the capabilities to reach them, and work on performance evaluation, and
formulate technology strategies for product development.
Techno-economic Analysis: The step is to conduct studies to assess and optimize
technology processes under techno-economic aspects with view to industrial requirements.

1.9 TEST QUESTIONS

1. What do you understand by the concept of technology management?
2. Write a note on the scope, components and overview of technology management. 41
Technology Management 3. Discuss technology and its positive and negative impact on environment.
4. What do you understand by technology impact analysis?
5. Discuss methods and techniques for the analysis of the impact of technology.
6. Describe in brief the steps involved in the technology impact analysis.
7. What are the social, legal, and political aspects of the impact of technology?
8. Write an essay on the relationship between technology, environment, and society.

1.10 SUGGESTED READINGS

Bowonder B. and Miyake T., Technological forecasting, Methodologies and Case
Studies.
Gerard H. Gaynor, Handbook of Technology Management, Mc-GrawHill.
M. Adhikary, Economic Environment of Business, Excel Books, New Delhi.
Noori H & Radford R.W., Reading and Cases in the Management of New Technology,
Englewood Cliffs, N.J. Prentice Hall, 1990.
Vivek Mittal, Business Environment, Excel Books, New Delhi.
V.S. Arunachalam, Transforming Technologies for the Future, Excel Books, New
Delhi.

42
LESSON

2
TECHNOLOGY POLICY STRATEGY
CONTENTS
2.0 Aims and Objectives
2.1 Introduction
2.2 Technology Policy Strategy
2.3 Science and Technology Policy of India
2.4 Implications to Industry
2.5 Let Us Sum Up
2.6 Key Terms
2.7 Test Questions
2.8 Suggested Readings

2.0 AIMS AND OBJECTIVES

After studying this lesson, you will be able to understand:
1. The meaning and importance of technology policy strategy.
2. The science and technology policy of India.
3. The implications of the Indian science and technology policy on the industry.

2.1 INTRODUCTION
Practising managers need usable, useful and worthwhile tools to assist them with the
development of their strategy and management of their technology. This lesson outlines
the action research methodology used to develop and test tools and processes for doing
this; provide an example of one such tool for the identification of core competencies and
capabilities; and give an interactive demonstration of how this tool is used in companies
through involving the delegates in a participative study. The lesson also highlights the key
features of the Indian technology policy strategy, with views of key Indian recent policy-
makers, with the same it also highlights the key features of the science and technology
policy 2003. The lesson also shadows on the implications of the new science and technology
policy on the growth and emancipation of the Indian industry, with the advent of the era
of liberalization, globalization and privatization.

2.2 TECHNOLOGY POLICY STRATEGY

Pre-Independence Era
Science & Technology (S&T) has always been an integral part of the Indian culture.
Natural Philosophy, as it was termed in ancient times, was pursued vigorously at institutions
Technology Management of higher learning. The contributions made by the scholar-scientists Aryabhatta, Bhaskara,
Brahmagupta, Dhanvantari and Nagarjuna, to name a few, to the fields of mathematics,
astronomy, medicine and chemistry during the prehistoric period are legendary and
invaluable not only to Indian S&T but also to the knowledge base of the humanity at
large. The astronomical observations at Jaipur and New Delhi and the Ashoka Pillar in
New Delhi stand as living testimonies to the high standards of Indian capabilities. The
dawn of the present century witnessed great strides made by Indian scientists like
Srinivasa Ramanujan, J.C. Bose, P.C. Ray, Meghnad Saha, C.V. Raman, S.N. Bose,
Birbal Sahni, P.C. Mahalanobis and M. Visvesvaraya, who have left indelible imprints on
the world S&T scene.
Post Independence Era
The innate ability to perform creatively in science came to be backed with an institutional
set-up and strong state support after country's independence in 1947. Since then, the
Government of India has spared no effort to establish a modern S&T organisation in the
country. India's first Prime Minister Pandit Jawaharlal Nehru gave whole-hearted support
to a concerted programme for the promotion of S&T in the country. As a result, many
new S&T departments and laboratories were set up and the pursuance of scientific
research started in an organised manner. Jawaharlal Nehru firmly believed that Science
and Technology can be the twin tools that would help bring about social equity and
economic development to enable India join the mainstream of the world community. This
conviction was reflected in the Scientific Policy Resolution (SPR) of 1958, the aim of
which was "to foster, promote and sustain the cultivation of sciences and scientific research
in the country and to secure for the people all the benefits that can accrue from the
acquisition and application of scientific knowledge".
Various Departments
With this in view, several departments were set up by the government with specific
objectives which at once met the immediate social needs even as they allowed the
country to leap-frog into the modern high-tech world. The departments of Atomic Energy,
Science and Technology, and Space were thus among the first S&T departments in the
country with the Prime Minister himself taking the reins. Industrialisation of the country,
according to the founding fathers of modern India, was essential for improving the quality
of life. Consequently, the Council of Scientific and Industrial Research expanded with
the establishment of various institutions dedicated to the development of specific industries.
The economic development of the country at that time had not reached a stage where
the private sector could play a leading role in the S&T development. Consequently, it
was rightly decided by the Government to take this task upon itself and provide the initial
momentum. This has resulted in a broad-based and extensive S&T network. Development
of adequate trained and competent S&T manpower, infrastructure and ability to work
towards specific goals in a time-targeted manner followed naturally. It is this which is
now making the task of changing the operational philosophy wherein the Government or
the public sector rightfully expects the private sector to become an equal, if not the
dominant, partner in the development of technology to a level where it becomes globally
competitive.
So wide is the S&T infrastructure in India today that it encompasses S&T organisations
under the Central Government, State Government as well as public and private sectors
working in areas as diverse as agriculture and healthcare on the one hand and nuclear
and space research on the other. Significant contributors are the large number of institutes/
44 undertakings functioning under the Central Government S&T departments.
The S&T departments functioning under the auspices of Central Government are : Technology Policy Strategy
Department of Science and Technology (DST), Department of Scientific & Industrial
Research (DSIR), Department of Atomic Energy (DAE), Department of Space (DoS),
Department of Biotechnology (DBT) and Department of Ocean Development (DOD).
DST
DST is primarily entrusted with the responsibility of formulation of S&T policies and
their implementation, identification and promotion of thrust areas of research in different
sectors of S&T; technology information, forecasting and assessment; international
collaboration, promotion of science & society programmes and coordination of S&T
activities in the country.
CSIR
The Council of Scientific and Industrial Research (CSIR), with its 40 institutes dedicated
to research and development in well defined areas and around 100 field stations, is the
major organisation under DSIR. Among the other programmes of DSIR are : support to
R&D by industry, programmes aimed at technological self-reliance, schemes to enhance
efficacy of transfer of technology and a National Information System for Science and
Technology (NISSAT).
DAE
DAE, which is committed to peaceful uses of atomic energy, is mainly engaged in
establishing production of safe, economical nuclear power, using country's resources of
uranium and thorium. It also extends non-electricity applications of nuclear energy in
agriculture, healthcare and industry to improve the quality of life. It builds research
reactors and develops technologies related to accelerators and lasers, and supports basic
research in areas related to nuclear energy and other frontier areas of science, through
its well equipped multi-disciplinary R&D Centers.
DoS
DoS operates through a major set-up, the Indian Space Research Organisation, which is
responsible for planning and executing a viable space programme to develop satellites
and launch systems and provide space-based services in the areas of communication,
meteorology, resources survey, management and sustainable development.
DBT
DBT is primarily responsible for identifying and supporting specific R&D programmes
in biotechnology and biotechnology-related product manufacture. It also supports training
of young scientists in the field of biotechnology at various universities and institutes.
DOD
DOD concerns itself with the task of establishing policies for marine R&D, survey of
living and non-living resources of EEZ and continental shelf of the country, exploration
of deep seabed mining, harnessing wave energy and consolidation of Antarctic research.
S&T Organisations
Sufficient infrastructure exists in the Indian S&T organisations to efficiently interact
with the end-users. In fact, a large number of projects are carried out on collaboration/
sponsorship basis. In addition to R&D activities, these organisations also support
extramural research, and provide extension services such as consultancy and training 45
Technology Management for the benefit of industry and other end-users. Among the S&T organisation associated
with other Central Government Ministries, Defence Research & Development
Organisation (DRDO) under the Ministry of Defence, Indian Council of Agricultural
Research (ICAR) under the Ministry of Agriculture and Indian Council of Medical
Research (ICMR) under the Ministry of Health & Family Welfare have large R&D
infrastructure. There are about 200 national laboratories and an equal number of R&D
institutes in the Central Sector and about 1300 R&D units in the industrial sector. The
number of persons employed in the R&D establishments is estimated to be around 300,000.
R&D Establishments
In addition to R&D establishments, the other major body pursuing S&T activities in India
is the country's vast university system. Comprising 162 universities, 32 institutions deemed
to be universities and 10 institutes of national importance, it is a major source of S&T
manpower development, producing around 200,000 S&T personnel every year. The total
stock of the S&T manpower in the country at the end of 1990, is estimated to be around
4.0 million. The Central Government is the chief patron of scientific and industrial research.
Its share was 74% of the India's total R&D expenditure estimated around Rs. 57 billion
during 1993-94.
The commitment of Indian Government to promote socio-economic growth of the country
through the use of S&T has shown remarkable success in a short span of four decades.
India today ranks among the few developing countries, those have achieved self-
sufficiency in food production. The country has endeavoured to fulfill the basic needs of
healthcare and housing for a large section of its people.
Various Areas of Research
In the field of basic research, the country has done notably and has established major
research groups with world-class capabilities in various emerging and frontline areas of
Science & Technology. Some examples are the areas of Molecular Biophysics, Molecular
Biology, Neuro-biology, Liquid Crystals, Biomedical Devices, Superconductivity,
Condensed Matter Physics, Astronomy and Astrophysics, Powder Processing and
Advanced Materials, Organic Chemistry, Solid Sate and Surface Chemistry, Numerical
Weather Prediction, Parallel Processing and Atmospheric Sciences.
India occupies a unique position in the world having formulated its own nuclear programme
and cultivated self-reliance in areas of reactor technology and its entire associated fuel
cycle. The country designs, constructs and operates nuclear reactors, fabricates the
required fuel -- reprocesses it, and treats the waste generated in the entire fuel cycle in
a comprehensive manner by a totally indigenous effort.
Similarly, in the high-tech area of space research India can now design, build and operate
state-of-the-art communication and remote sensing satellites as well as launch 1000 kg
class remote sensing satellites into polar sun-synchronous orbit. Many of the technologies
developed for the nuclear and space research programmes are now finding their way
into the market and being used in other sectors. Indian industry is striving to keep pace
with these developments.
Major Achievements
Yet another achievement which speaks of the high level of S&T capability of India is the
development of supercomputers -- only a few advanced countries have this capability today.
In the field of Aeronautics, the country has developed and successfully flown an all-
composite trainer aircraft. Projects are in hand for the development of Light Transport
46 Aircraft and Light Combat Aircraft.
A large number of technologies have been developed and commercialized for various Technology Policy Strategy
chemicals, including petrochemicals and agrochemicals; industrial catalysts; drugs and
pharmaceuticals; biomedical devices; food processing; leather processing and products;
engineering materials and equipment; electronic equipment and construction materials,
to cite a few. Many of these technologies have also been marketed abroad, an indication
of their global competitiveness.
Special mention may be made of the technologies developed for industrial catalysts,
such as Encilites, for producing important petrochemicals like p-xylene, ethyl benzene
and olefins, and for drugs such as AZT (anti-AIDS), Etoposide (anti-cancer) and
Centchroman (non-steroidal oral contraceptive).
Micropropagation of several trees and crops by the plant tissue culture technique,
development of ELISA and PCR techniques and DNA probes for detecting enteric
pathogens in drinking water, development of toxinogenic oral vaccine for cholera and
conversion of molasses to ethanol using a special yeast strain are a few examples of
achievements made in the field of Biotechnology.
The major programmes being pursued in the field of marine sciences include exploration
and exploitation of living and non-living marine resources, study of air-sea interactions,
coastal zone management and scientific expeditions to Antarctica. India has established
its reputation for carrying out oceanographic surveys. A major assignment completed
was the comprehensive survey of the Caribbean waters under the CORE project. India's
success in exploration and survey of deep sea polymetallic nodules has earned here the
distinction of being registered as a Pioneer Investor under the UN Convention on the
Law of the Sea which has recently come into force. An area of 150,000 sq.km has been
allotted in the Central Indian Ocean to India for survey, exploration, and ultimate retention
of 75,000 sq.km. of high abundance area.
The views of prominent Indian technology policy strategy-makers:
A major milestone in the field of science and technology is the science and technology
policy 2003. About 2003 policy we quote here briefs from the then President, PM, Science
and Technology Minister.
Hon'ble Dr. A.P.J. Abdul Kalam
Hon'ble Dr. A.P.J. Abdul Kalam, then President of India, said, "Today India has become
one of the strongest in the world in terms of scientific manpower in capability and maturity.
Hence, we are in a position not only to understand the technologies that we may have to
borrow, but also to create our own technologies with extensive scientific inputs of
indigenous origin. Basically we have come a long way since our independence, from
mere buyers of technology to those of who have made science and technology as an
important contributor for national development and societal transformation. In a world
where the powers are determined by their share of the world's knowledge, reflected by
patents, papers and so on, the WTO starts to play a crucial role in the economic
development. It is important for India to put all her acts together to become a continuous
innovator and creator of science and technology intensive products".
Dr. Manmohan Singh
Dr. Manmohan Singh, Hon'ble Prime Minister of India said, "We take satisfaction from
the fact that over 100 global companies have come to India to set up R&D Centres,
affirming the intellectual capital of our scientific and engineering community. Science
must grapple with the key challenges facing the country today. These include the pressures 47
Technology Management of increasing population, greater health risks, changing demographics, degraded natural
resources, and dwindling farmlands. We need new science and technologies, new priorities
and new paradigms to address these fundamental challenges. We in India are practising
new physics and new chemistry to make new materials. These are of direct relevance
to the Millennium Development Goals of the United Nations".
Sh. Kapil Sibal
Shri Kapil Sibal, Hon'ble then Minister of State for Science and Technology & Earth
Sciences, said, "Since independence, the government of India has been strongly aware
of both needs - the need to build up a powerful science base, and the need to ensure that
science is not restricted to the university laboratories. Under a succession of enlightened
leaders, Indian governments have long recognised the need for any country that aspires
to call itself a modern nation to invest heavily in science and technology".
"The fruits of this foresight are now widely visible. Thanks largely to the government's
determination that the country should build a strong independent base in science and
technology, India".

2.3 SCIENCE AND TECHNOLOGY POLICY OF INDIA

2.3.1 The Science and Technology Policy, 2003
Preamble
Science and technology have profoundly influenced the course of human civilization.
Science has provided us remarkable insights into the world we live in. The scientific
revolutions of the 20th century have led to many technologies, which promise to herald
wholly new eras in many fields. As we stand today at the beginning of a new century, we
have to ensure fullest use of these developments for the well being of our people.
Science and technology have been an integral part of Indian civilization and culture over
the past several millennia. Few are aware that India was the fountainhead of important
foundational scientific developments and approaches. These cover many great scientific
discoveries and technological achievements in mathematics, astronomy, architecture,
chemistry, metallurgy, medicine, natural philosophy and other areas. A great deal of this
traveled outwards from India. Equally, India also assimilated scientific ideas and techniques
from elsewhere, with open-mindedness and a rational attitude characteristic of a scientific
ethos. India's traditions have been founded on the principles of universal harmony, respect
for all creation and an integrated holistic approach. This background is likely to provide
valuable insights for future scientific advances. During the century prior to Independence,
there was an awakening of modern science in India through the efforts of a number of
outstanding scientists. They were responsible for great scientific advances of the highest
international caliber.
In the half century since Independence, India has been committed to the task of promoting
the spread of science. The key role of technology as an important element of national
development is also well recognized. The Scientific Policy Resolution of 1958 and the
Technology Policy Statement of 1983 enunciated the principles on which the growth of
science and technology in India has been based over the past several decades. These
policies have emphasized self-reliance, as also sustainable and equitable development.
They embody a vision and strategy that are applicable today, and would continue to
inspire us in our endeavors.
48
With the encouragement and support that has been provided, there is today a sound Technology Policy Strategy
infrastructural base for science and technology. These include research laboratories,
higher educational institutions and highly skilled human resource. Indian capabilities in
science and technology cover an impressive range of diverse disciplines, areas of
competence and of applications. India's strength in basic research is recognized
internationally. Successes in agriculture, health care, chemicals and pharmaceuticals,
nuclear energy, astronomy and astrophysics, space technology and applications, defense
research, biotechnology, electronics, information technology and oceanography are widely
acknowledged. Major national achievements include very significant increase in food
production, eradication or control of several diseases and increased life expectancy of
our citizens.
While these developments have been highly satisfying, one is also aware of the dramatic
changes that have taken place, and continue to do so, in the practice of science, in
technology development, and their relationships with, and impact on, society.
Particularly striking is the rapidity with which science and technology is moving ahead.
Science is becoming increasingly inter-and multi-disciplinary, and calls for multi-
institutional and, in several cases, multi-country participation. Major experimental facilities,
even in several areas of basic research, require very large material, human and intellectual
resources. Science and technology have become so closely intertwined, and so reinforce
each other that, to be effective, any policy needs to view them together. The continuing
revolutions in the field of information and communication technology have had profound
impact on the manner and speed with which scientific information becomes available,
and scientific interactions take place.
Science and technology have had unprecedented impact on economic growth and social
development. Knowledge has become a source of economic might and power. This has
led to increased restrictions on sharing of knowledge, to new norms of intellectual property
rights, and to global trade and technology control regimes. Scientific and technological
developments today also have deep ethical, legal and social implications. There are deep
concerns in society about these. The on going globalization and the intensely competitive
environment have a significant impact on the production and services sectors.
Because of all this, our science and technology system has to be infused with new
vitality if it is to play a decisive and beneficial role in advancing the wellbeing of all
sections of our society. The nation continues to be firm in its resolve to support science
and technology in all its facets. It recognizes its central role in raising the quality of life of
the people of the country, particularly of the disadvantaged sections of society, in creating
wealth for all, in making India globally competitive, in utilizing natural resources in a
sustainable manner, in protecting the environment and ensuring national security.
Policy Objectives
Recognizing the changing context of the scientific enterprise, and to meet present national
needs in the new era of globalization, Government enunciates the following objectives of
its Science and Technology Policy:
1. To ensure that the message of science reaches every citizen of India, man and
woman, young and old, so that we advance scientific temper, emerge as a
progressive and enlightened society, and make it possible for all our people to
participate fully in the development of science and technology and its application
for human welfare. Indeed, science and technology will be fully integrated with all
spheres of national activity.
49
Technology Management 2. To ensure food, agricultural, nutritional, environmental, water, health and energy
security of the people on a sustainable basis.
3. To mount a direct and sustained effort on the alleviation of poverty, enhancing
livelihood security, removal of hunger and malnutrition, reduction of drudgery and
regional imbalances, both rural and urban, and generation of employment, by using
scientific and technological capabilities along with our traditional knowledge pool.
This will call for the generation and screening of all relevant technologies, their
widespread dissemination through networking and support for the vast unorganized
sector of our economy.
4. To vigorously foster scientific research in universities and other academic, scientific
and engineering institutions; and attract the brightest young persons to careers in
science and technology, by conveying a sense of excitement concerning the
advancing frontiers, and by creating suitable employment opportunities for them.
Also to build and maintain centres of excellence, which will raise the level of work
in selected areas to the highest international standards.
5. To promote the empowerment of women in all science and technology activities
and ensure their full and equal participation.
6. To provide necessary autonomy and freedom of functioning for all academic and
R&D institutions so that an ambience for truly creative work is encouraged, while
ensuring at the same time that the science and technology enterprise in the country
is fully committed to its social responsibilities and commitments.
7. To use the full potential of modern science and technology to protect, preserve,
evaluate, update, add value to, and utilize the extensive knowledge acquired over
the long civilizational experience of India.
8. To accomplish national strategic and security-related objectives, by using the latest
advances in science and technology.
9. To encourage research and innovation in areas of relevance for the economy and
society, particularly by promoting close and productive interaction between private
and public institutions in science and technology. Sectors such as agriculture
(particularly soil and water management, human and animal nutrition, fisheries),
water, health, education, industry, energy including renewable energy, communication
and transportation would be accorded highest priority. Key leverage technologies
such as information technology, biotechnology and materials science and technology
would be given special importance.
10. To substantially strengthen enabling mechanisms that relate to technology
development, evaluation, absorption and up-gradation from concept to utilization.
11. To establish an Intellectual Property Rights (IPR) regime that maximizes the
incentives for the generation and protection of intellectual property by all types of
inventors. The regime would also provide a strong, supportive and comprehensive
policy environment for speedy and effective domestic commercialization of such
inventions so as to be maximal in the public interest.
12. To ensure, in an era in which information is key to the development of science and
technology, that all efforts are made to have high-speed access to information, both
in quality and quantity, at affordable costs; and also create digitized, valid and usable
content of Indian origin.
50
13. To encourage research and application for forecasting, prevention and mitigation Technology Policy Strategy
of natural hazards, particularly, floods, cyclones, earthquakes, drought and landslides.
14. To promote international science and technology cooperation towards achieving
the goals of national development and security, and make it a key element of our
international relations.
15. To integrate scientific knowledge with insights from other disciplines, and ensure
fullest involvement of scientists and technologists in national governance so that
the spirit and methods of scientific enquiry permeate deeply into all areas of public
policy making.
It is recognized that these objectives will be best realized by a dynamic and flexible
Science and Technology Policy, which can readily adapt to the rapidly changing world
order. This Policy, reiterates India's commitment to participate as an equal and vigorous
global player in generating and harnessing advances in science and technology for the
benefit of all humankind.
Strategy and Implementation Plan
Keeping in view these broad objectives, it is essential to spell out an implementation
strategy that will enable identification of specific plans, programmes and projects, with
clearly defined tasks, estimates of necessary resources, and time targets. Some of the
key elements of the implementation strategy will be as follows:
1. Science and Technology Governance and Investments: Suitable mechanism
will be evolved by which independent inputs on science and technology policy and
planning are obtained on a continuous basis from a wide cross section of scientists
and technologists. It will utilize the academies and specialized professional bodies
for this purpose. These inputs will form an integral part of the planning and
implementation of all programmes relating to science and technology, as also in
government decision making and formulation of policies in socio-economic sectors.
A greater integration of the programmes in socio-economic sectors with R&D
activities will go a long way in ensuring a wider, more visible and tangible impact.
This will call for a certain percentage of the overall allocation of each of the socio-
economic ministries to be devoted for relevant programmes and activities in science
and technology. The States will also be encouraged and assisted in the use of
science and technology for developmental purposes through mechanisms set up
for this, and in establishing linkages with national institutions for solving their regional
and locale-specific problems.
A concerted strategy is necessary to infuse a new sense of dynamism in our science
and technology institutions. The science departments, agencies and other academic
institutions, including universities i.e. the science and technology system as a whole,
would be substantially strengthened, given full autonomy and flexibility, and de-
bureaucratized.
Mechanisms will be established to review on a continuous basis the academic
and administrative structures and procedures in the science and technology system
at all levels, so that reforms could be effected to meet the challenges of the
changing needs.
It will be ensured that all highly science-based Ministries/Departments of
Government are run by scientists and technologists. All the major socio-economic
Ministries will have high-level scientific advisory mechanisms. 51
Technology Management Government will ensure continued existence of an Apex S&T Advisory Body which
will assist in formulating and implementing various programmes and policies. It will
have appropriate representation of industry leaders, leading scientists and
technologists and various scientific departments.
Government will make necessary budgetary commitments for higher education and
science and technology. It will, through its own resources and also through contribution
by industry, raise the level of investment to at least 2% of GDP on science and
technology by the end of the Tenth Plan. For this, it is essential for industry to steeply
increase its investments in R&D. This will enable it to be competitive, achieve greater
self-reliance and self-confidence, and fulfill national goals.
2. Optimal Utilization of Existing Infrastructure and Competence: Science and
technology is advancing at a very fast pace, and obsolescence of physical
infrastructure, as also of skills and competence, take place rapidly. Steps will be
taken to network the existing infrastructure, investments and intellectual strengths,
wherever they exist, to achieve effective and optimal utilization, and constantly
upgrade them to meet changing needs.
3. Strengthening of the Infrastructure for Science and Technology in Academic
Institutions: A major initiative to modernize the infrastructure for science and
engineering in academic institutions will be undertaken. It will be ensured that all
middle and high schools, vocational and other colleges will have appropriately sized
science laboratories. Science, engineering and medical departments in academic
institutions and universities and colleges will be selected for special support to raise
the standard of teaching and research. To begin with, a significant number of
academic institutions, specially the universities, as also engineering and medical
institutions, would be selected for this support to make an impact. Flexible
mechanisms for induction of new faculty in key areas of science would be
developed. Constancy of support and attention will be ensured over at least a ten-
year period.
4. New Funding Mechanisms for Basic Research: The setting up of more efficient
funding mechanisms will be examined, either by creating new structures or by
strengthening or restructuring the existing ones, for promotion of basic research in
science, medical and engineering institutions. In particular, administrative and
financial procedures will be simplified to permit efficient operation of research
programmes in diverse institutions across the country.
Creation of world class facilities in carefully selected and nationally relevant fields
will be undertaken, to enhance our international competitiveness in areas where
we have strengths, opportunities or natural advantages. Indigenous expertise will
be used to the maximum extent possible. This would help in nurturing high quality
talent and expertise in experimental science and engineering.
5. Human Resource Development: The number of scientists and technologists, while
being large in absolute numbers, do not commensurate with the requirements in
quality and when measured on a per capita basis. The demand is bound to increase
in the coming years with more intensive activities involving science and technology.
There is need to progressively increase the rate of generation of high quality skilled
human resource at all levels. This process would naturally entail reversing the
present flow of talent away from science, by initiating new and innovative schemes
to attract and nurture young talent with an aptitude for research, and by providing
52 assured career opportunities in academia, industry, Government or other sectors.
 In order to encourage quality and productivity in science and technology, mobility Technology Policy Strategy
of scientists and technologists between industry, academic institutions and research
laboratories will be ensured.
For building up the human resource base in relevant areas, the agencies and
departments concerned with science and technology will make available substantial
funding from their allocation. Flexible mechanisms will be put in place in academic
and research institutions to enable researchers to change fields and bring new
inputs into traditional disciplines, and also to develop inter-disciplinary areas. There
will be emphasis on a continuing process of retraining and re-skilling to keep pace
with the rapid advances taking place. Wherever considered necessary, training
abroad will be resorted to, so as to build up a skilled base rapidly. Women constitute
almost half the population of the country. They must be provided significantly greater
opportunities for higher education and skills that are needed to take up R&D as a
career. For this, new procedures, and flexibility in rules and regulations, will be
introduced to meet their special needs.
New mechanisms would be instituted to facilitate the return of scientists and
technologists of Indian origin to India, as also their networking, to contribute to
Indian science and technology. Schemes for continuing education and training of
university and college teachers in contemporary research techniques and in emerging
areas of science will be strengthened and new innovative programmes started. It
will also be ensured that higher education is available to the widest possible section
of creative students, transcending social and economic barriers.
6. Technology Development, Transfer and Diffusion: A strong base of science
and engineering research provides a crucial foundation for a vibrant programme of
technology development. Priority will be placed on the development of technologies
which address the basic needs of the population; make Indian industries - small,
medium or large - globally competitive; make the country economically strong; and
address the security concerns of the nation. Special emphasis will be placed on
equity in development, so that the benefits of technological growth reach the majority
of the population, particularly the disadvantaged sections, leading to an improved
quality of life for every citizen of the country. These aspects require technology
foresight, which involves not only forecasting and assessment of technologies but
also their social, economic and environmental consequences.
The growth rate in productivity of the Indian economy has been below its true
potential, and the contribution to it of technological factors is inadequate. Similarly,
Indian exports today derive their comparative advantage through resource and
labour rather than through the power of technological innovation. The transformation
of new ideas into commercial successes is of vital importance to the nation's ability
to achieve high economic growth and global competitiveness. Accordingly, special
emphasis will be given not only to R&D and the technological factors of innovation,
but also to the other equally important social, institutional and market factors needed
for adoption, diffusion and transfer of innovation to the productive sectors.
Intensive efforts will be launched to develop innovative technologies of a
breakthrough nature; and to increase our share of high-tech products. Aggressive
international bench-marking will be carried out. Simultaneously, efforts will be made
to strengthen traditional industry so as to meet the new requirements of competition
through the use of appropriate science and technology. This industry is particularly
important as it provides employment at lower per capita investment, involves low
energy inputs, and carries with it unique civilizational traditions and culture. Value 53
Technology Management addition, and creation of wealth through reassessment, redistribution and repositioning
of our intellectual, capital and material resource will be achieved through effective
use of science and technology.
Deriving value from technology-led exports and export of technologies will be
facilitated through new policy initiatives, incentives and legislation. This will include
intensive networking of capabilities and facilities within the country.
Rigid Quality Standards, and Accreditation of testing and calibration laboratories
according to international requirements, will be given an enhanced push to enable
Indian industry to avoid non-tariff barriers in global trade.
A comprehensive and well-orchestrated programme relating to education, R&D
and training in all aspects of technology management will be launched. To begin
with, Indian Institutes of Management (IIMs), Indian Institutes of Technology (IITs)
and other selected institutions will be encouraged to initiate these programmes.
7. Promotion of Innovation: Innovation will be supported in all its aspects. A
comprehensive national system of innovation will be created covering science and
technology as also legal, financial and other related aspects. There is need to change
the ways in which society and economy performs, if innovation has to fructify.
8. Industry and Scientific R&D: Every effort will be made to achieve synergy
between industry and scientific research. Autonomous Technology Transfer
Organizations will be created as associate organizations of universities and national
laboratories to facilitate transfer of the know-how generated to industry. Increased
encouragement will be given, and flexible mechanisms will be evolved to help,
scientists and technologists to transfer the know-how generated by them to the
industry and be a partner in receiving the financial returns. Industry will be
encouraged to financially adopt or support educational and research institutions,
fund courses of interest to them, create professional chairs etc. to help direct S&T
endeavours towards tangible industrial goals.
There has to be increased investments by industry in R&D in its own interest to
achieve global competitiveness to be efficient and relevant. Efforts by industry to
carry out R&D, either in-house or through outsourcing, will be supported by fiscal
and other measures. To increase their investments in R&D, innovative mechanisms
will be evolved.
9. Indigenous Resources and Traditional Knowledge: Indigenous knowledge, based
on our long and rich tradition, would be further developed and harnessed for the
purpose of wealth and employment generation. Innovative systems to document,
protect, evaluate and to learn from India's rich heritage of traditional knowledge of
the natural resources of land, water and bio-diversity will be strengthened and
enlarged. Development of technologies that add value to India's indigenous resources
and which provide holistic and optimal solutions that are suited to Indian social-
cultural-economic ethos will be developed. A concerted plan to intensify research
on traditional systems of medicine, so as to contribute to fundamental advances in
health care, and leading to commercialization of effective products will be
undertaken; appropriate norms of validation and standardization will be enforced.
A purposeful programme to enhance the Indian share of the global herbal product
market will be initiated.
10. Technologies for Mitigation and Management of Natural Hazards: Science
54 and technology has an important role in any general strategy to address the problems
 of mitigation and management of the impacts of natural hazards. A concerted action Technology Policy Strategy
plan to enhance predictive capabilities and preparedness for meeting emergencies
arising from floods, cyclones, earthquakes, drought, landslides and avalanches will
be drawn up. Measures will be undertaken to promote research on natural
phenomena that lead to disasters and human activities that aggravate them. This
will be with a view to developing practical technological solutions for pre-disaster
preparedness, and mitigation and management of post- disaster situations.
11. Generation and Management of Intellectual Property: Intellectual Property
Rights (IPR), have to be viewed, not as a self-contained and distinct domain, but
rather as an effective policy instrument that would be relevant to wide ranging
socio-economic, technological and political concepts. The generation and fullest
protection of competitive intellectual property from Indian R&D programmes will
be encouraged and promoted.
The process of globalization is leading to situations where the collective knowledge
of societies normally used for common good is converted to proprietary knowledge
for commercial profit of a few. Action will be taken to protect our indigenous
knowledge systems, primarily through national policies, supplemented by supportive
international action. For this purpose, IPR systems which specially protect scientific
discoveries and technological innovations arising out of such traditional knowledge
will be designed and effectively implemented.
Our legislation with regard to Patents, Copyrights and other forms of Intellectual
Property will ensure that maximum incentives are provided for individual inventors,
and to our scientific and technological community, to undertake large scale and
rapid commercialization, at home and abroad.
The development of skills and competence to manage IPR and leveraging its influence
will be given a major thrust. This is an area calling for significant technological
insights and legal expertise and will be handled differently from the present, and
with high priority.
12. Public Awareness of Science and Technology: There is growing need to enhance
public awareness of the importance of science and technology in everyday life,
and the directions where science and technology is taking us. People must be able
to consider the implications of emerging science and technology options in areas
which impinge directly upon their lives, including the ethical and moral, legal, social
and economic aspects. In recent years, advances in biotechnology and information
technology have dramatically increased public interest in technology options in wide
ranging areas. Scientific work and policies arising from these have to be highly
transparent and widely understood.
Support for wide dissemination of scientific knowledge, through the support of
science museums, planetaria, botanical gardens and the like, will be enhanced.
Every effort will be made to convey to the young the excitement in scientific and
technological advances and to instill scientific temper in the population at large.
Special support will be provided for programmes that seek to popularize and promote
science and technology in all parts of the country. Programmes will also be
developed to promote learning and dissemination of science through the various
national languages, to enable effective science communication at all levels.
A closer interaction of those involved in the natural sciences and technology, social
sciences, humanities and other scholarly pursuits will be facilitated to bring about
55
mutual reinforcement, added value and impact.
Technology Management 13. International Science and Technology Cooperation: Scientific research and
technology development can benefit greatly by international cooperation and
collaboration. Common goals can be effectively addressed by pooling both material
and intellectual resources. International collaborative programmes, especially those
contributing directly to our scientific development and security objectives, will be
encouraged between academic institutions and national laboratories in India and
their counterparts in all parts of the world, including participation in mega science
projects as equal partners. Special emphasis will be placed on collaborations with
other developing countries, and particularly neighbouring countries, with whom India
shares many common problems. International collaboration in science and technology
would be fully used to further national interests as an important component of
foreign policy initiatives.
14. Fiscal Measures: Innovative fiscal measures are critical to ensure successful
implementation of the policy objectives. New methods are required for incentivising
R&D activities, particularly in industry. New strategies have to be formulated for
attracting higher levels of public and private investments in scientific and
technological development. A series of both tax and non-tax fiscal instruments
have to be evolved to ensure a leap-frogging process of development. The
formulation of a focused strategy and the designing of new methods and instruments
requires inputs from economists, financial experts and management experts and
scientists. For this purpose, the apex S&T advisory body will constitute a dedicated
task-force to suggest appropriate fiscal measures to subserve the policy objectives.
15. Monitoring: Effective, expeditious, transparent and science-based monitoring and
reviewing mechanisms will be significantly strengthened, and wherever not available
will be put in place. It will be ensured that the scientific community is involved in,
and responsible for, smooth and speedy implementation.
16. The New Vision: To build a new and resurgent India that continues to maintain its
strong democratic and spiritual traditions, that remains secure not only militarily but
also socially and economically, it is important to draw on the many unique civilizational
qualities that define the inner strength of India; this has been intrinsically based on
an integrated and holistic view of nature and of life. The Science and Technology
Policy 2003 will be implemented so as to be in harmony with our world view of the
larger human family all around. It will ensure that science and technology truly
uplifts the Indian people and indeed all of humanity.
(Source: Department of Science and Technology, Government of India)

2.4 IMPLICATIONS TO INDUSTRY

The Department of Science & Technology plays a pivotal role in promotion of science &
technology in the country. The department has wide ranging activities ranging from
promoting high end basic research and development of cutting edge technologies on one
hand to service the technological requirements of the common man through development
of appropriate skills and technologies on the other. Instrumentation is one of the major
areas of Science & Technology which makes a great impact on vital sectors of national
activities such as education, scientific research, industry, agriculture, medicine and health
etc. The Department of Science & Technology (DST) has been promoting the area of
Instrumentation through its Instrumentation Development Programme (IDP).
The programme focuses on strengthening indigenous capability for research, design,
development and production of instruments in the country leading to fulfillment of the
56 following objectives:
1. Indigenous development and production of instruments, Technology Policy Strategy

2. Continuous updating of the technology of instruments to keep pace with technology

improvements taking place globally, and
3. Innovations in the area of instrumentation
2.4.1 Technology Development
As per policy the Department of Science & Technology (DST) has been promoting:
1. Drugs & Pharmaceutical Research
2. Good Laboratory Practice Authority
3. Instrumentation Development Programme
4. Inter-Sectoral Science & Technology Advisory Committee (STAC /IS-STAC)
a. Participation of Youth in Real-Time Observation to Benefit Education
(PROBE).
5. Patent Facilitating Centre
6. Technology Development Board
7. Technology Systems Development Programme
2.4.2 Science & Technology Transforming Indian Industry
The Indian economy has undergone a structural change over the last decade, with shares
of agriculture, manufacturing and services in the gross domestic product (GDP) changing
from 28.52%, 24.37% and 47.11% respectively in 1997-98 to 20.83%, 26.78% and 52.39%
respectively in 2007-08. The share of merchandise trade in GDP increased from 20.28%
to 38.61% over the same period and India's share in world exports increased from 0.5%
in 1990 to 1.1% in 2006.
Science and Technology has played an important role in bringing about this transformation
in Indian economy, which is showing a shift from a predominantly agriculture based
economy to manufacturing and services based economy and is now increasingly integrating
with the world economy to become globally competitive, as demonstrated by its increasing
share in world exports. Government S&T departments and agencies have undertaken or
promoted research and development to provide innovative and contemporary technologies
to industry and India's recent growth has been driven by rapid expansion in export-
oriented, skill intensive manufacturing and, especially, skill intensive services. India is
increasingly becoming a top global innovation player in bio-technology, pharmaceuticals,
automotive parts and assembly, information technology (IT), software and IT-enabled
services (ITES) and has already become the world's fourth-largest economy on purchasing
power parity (PPP) basis.
Eleventh Five Year Plan approach to S&T has emphasized the following:
1. Setting up a national-level mechanism for evolving policies and providing direction
to basic research;
2. Enlarging the pool of scientific manpower, strengthening the S&T infrastructure
and attracting & retaining young people to careers in science;
57
Technology Management 3. Implementing selected National Flagship Programmes which have direct bearing
on the technological competitiveness of the country in a mission mode;
4. Establishing globally competitive research facilities and centres of excellence;
5. Kindling an innovative spirit among scientists to translate R&D leads into scalable
technologies;
6. Developing new models of public private partnerships (PPPs) in higher education,
particularly for research in universities and high technology areas;
7. Identifying ways and means of catalyzing industry-academia collaborations; and
8. Promoting strong linkages with advanced countries, including participation in mega
international science initiatives.
The Eleventh Plan Outlay for S&T sector comprising of Department of Science and
Technology, Department of Scientific & Industrial Research and Department of
Biotechnology the three Departments under the Ministry of Science and Technology,
Ministry of Earth Sciences, Departments of Space and Atomic Energy has been raised
to Rs.75,304 crore, which is approximately three times the Tenth Plan Outlay.
This information was given by the Minister of State for Science and Technology and
Earth Sciences (Independent charges), PMO, Personnel, Public Grievances & Pensions
and Parliamentary Affairs, Shri Prithviraj Chavan in a written reply to a question by Smt.
T. Ratna Bai in the Rajya Sabha on July 30, 2009.
2.4.3 New Millennium Indian Technology Leadership Initiative (NMITLI)
Scheme
As a part of New Millennium initiative, the Government mounted a farsighted R&D
Programme named 'New Millennium Indian Technology Leadership Initiative (NMITLI)'
in Public-Private Partnership mode in 2000-01. The programme was announced as part
of the Union Budget in the year 2000. The responsibility of conceptualizing, evolving and
implementing the programme has been assigned to the Council of Scientific & Industrial
Research (CSIR).
The trigger for NMITLI programme was:
1. From incremental innovation to disruptive innovation;
2. Tolerance for risk taking and failure;
3. Best minds in India to take up the grand challenge for collaborative excellence; and
4. Technology leadership.
The NMITLI focus is to:
1. identify niche areas where India can gain leadership in about 10-15 years;
2. develop projects involving best brains of the country through a rigorous process;
3. build knowledge network of partners from public funded institutions and private
industries;
4. develop new methods of working together for collaborative excellence;

58 5. focus on proof-of-concept; and

6. provide a pipeline of cutting edge Indian innovation for conventional technology Technology Policy Strategy
financing bodies as against the 'usual safe bets.
Today, the New Millennium Indian Technology Leadership Initiative (NMITLI) is the
largest public-private-partnership effort within the R&D domain in the country. It looks
beyond today's technology and thus seeks to build, capture and retain for India a leadership
position by synergising the best competencies of publicly funded R&D institutions,
academia and private industry. The Government finances and plays a catalytic role. It is
based on the premise of consciously and deliberately identifying, selecting and supporting
potential winners. NMITLI has carved out a unique niche in the innovation space and
enjoys an excellent reputation.
NMITLI has so far evolved 57 largely networked projects in diverse areas viz. Agriculture
& Plant Biotechnology, General Biotechnology, Bioinformatics, Drugs & Pharmaceuticals,
Chemicals, Materials, Information and Communication Technology and Energy. These
projects involve 80 industry partners & 270 R&D groups from different institutions.
Approximately 1700 researchers are engaged in these projects. These 57 projects
cumulatively have had an outlay of approximately Rs. 500 crore.
NMITLI Achievements
The programme has generated about 100 international patents and 150 publications in
peer reviewed journals. The important achievements are:
1. Paradigm shift in leather processing-From chemical to biochemical route
2. Pilot plants for separating cellulose, hemi-cellulose and lignin from bagasse
3. Pilot plants for producing lactic acid from sugarcane juice
4. Bio-informatics software viz. Bio-Suite, GenoCluster, Bio-SuiteC and Darshee
5. Developed three variants of SofComp (Simple office Computer) devices including
Mobilis
6. Anti-psoriasis formulation in Phase-III Clinical Trial
7. Lysostaphin in Phase-II Clinical Trial
8. Anti-tuberculosis molecule in Phase-II Clinical Trial
9. poly herbal formulations for diabetes, arthritis and hepatic disorder
10. Micro-PCR based immuno-diagnostics for detecting eye infections
11. Development of new plant varieties of Mentha piperita
12. Development of Triple-Play broadband technology.
Enthused by the success of the programme and on the recommendations of several
committees, Government has approved the expansion of NMITLI programme to
experiment newer models of innovation development.
Funding along with Industry (50:50 Initiative)
There are many Indian companies who are doing financially very well but do not have
the necessary expertise and intellectual resources to develop focused network projects
for development of technologies/products in their line of activities. Their efforts need
complementation from suitable R&D institutions and guidance from recognized peers to 59
Technology Management develop and commercialize newer technologies/products. Therefore, NMITLI will
leverage its experiential base to encourage and assist such companies for developing
network projects for those companies in product/technology development through a
specific scheme called 'NMITLI 50:50 initiative'.
Co-financing with Venture Capital Funds
Many venture capitals are limited in scope and risk taking, due to lack of domain knowledge
within the organization. Venture Capitals are therefore interested in joining hands with
NMITLI, which has strong domain knowledge base, to jointly finance projects. Such
projects would be identified and evolved following the procedures established by NMITLI.
The funding would be joint with pre-determined ratio, but not more than 50% contribution
from NMITLI. These projects are envisaged to be monitored by a joint team of experts
as per the NMITLI monitoring mechanism. The proposed funding would follow the
venture funding norms. The successes and failures resulting from the projects will be
shared on equitable basis.
Setting up of NMITLI Innovation Centres in Selected Areas for Long Term
Sustained Efforts
Some areas need long term sustained support with requisite human resource as well
as infrastructure, assembled at one place to cross the threshold of intellectual barrier
in order to generate globally competitive technologies and products, IPR, and high
quality publications. It is envisaged to set up 'NMITLI Innovation Centres' in PPP
mode for sustained efforts in some selected areas for example, Photovoltaics, Fuel
Cells, White LEDs, Industrial Enzymes, Medical Implants, Vaccine development, Seed
Development etc.
Support to Post NMITLI Projects
Despite the excellent R&D and developments, the technologies and products developed
in the laboratory do need market seeding, pilot plant studies to refine the development.
The companies need CSIR's hand holding to develop and package the technologies/
products further. The concept of 'Post-NMITLI' will fulfill the objective of providing
financial and technical assistance for pre-commercialization related activities such as
scale up, pilot plants, field trials, market seeding of products, market surveys, etc.
Acquisition of Early Stage Relevant Knowledge/IP for Portfolio Building
External ideas/leads/IP acquisition are assuming greater significance in the chain of
innovation and mind to market. The availability of a large number of unencumbered IP
(being developed in several laboratories globally) is providing a fillip to this approach.
Several countries across the globe are striving to take advantage of the diversity of
creativity available in different parts of world and integrate with its own developments to
bring out new products/processes for global competitiveness. Since NMITLI aims to
provide the Technological Leadership to the Indian industry, it becomes imperative for
NMITLI to adopt such practices to achieve its objectives. Such acquisitions shall be in
chosen areas with a view to creating a portfolio where NMITLI projects are in operation.
Crossing the Geographical Boundaries
It is increasingly being felt that to achieve leadership in niche technology areas, relying
totally on internal expertise and capabilities may not be adequate. To achieve the objective
of global leadership, it would be helpful to broaden the programme by bringing in
international expertise. The international expertise may be in the form of expert advise
60 of international experts at various stages of project development and implementation,
involving international companies for product/technology development and Technology Policy Strategy
commercialization at global scale, and engaging research institutions and/or CROs across
the globe where Indian expertise need outside complementation.
Joint development and support of projects with other departments of science and
technology as well as economic ministries
Many government departments are engaged in research and development activities in
areas of relevance to them. These activities often have considerable degree of overlap
with other scientific departments. However, these departments' expertise is limited to
undertake multi-disciplinary projects in cutting edge areas requiring wide-spectrum of
intellectual and infrastructural inputs. Such multi-disciplinary areas need expertise, inputs
and concerted efforts from all concerned government departments to generate IPR,
technologies and products besides high quality publications. Therefore, part of the NMITLI
funds will be utilized to generate inter-departmental projects in the XI FY Plan. The
proposed scheme apart from generating intellectual capital, technologies and products in
cutting edge areas would act as a catalyst to bring better co-ordination among various
departments of government in the R&D sphere.
Relaxing the Condition of more than 50% Shareholding by
Indians/Non-resident Indians
Many oversees companies through their R&D efforts using local resources, produce
goods for local as well as overseas consumption and are thus contributing to the growth
of Indian economy. They also employ Indian workforce. In some areas, such companies
are better equipped to upscale the technology/products and sell it under their brand
name. Further, they can become a vehicle for taking Indian technologies and products
into global market easily thereby contributing more to Indian economy. The provision
permits relaxation of the condition of more than 50% shareholding by Indians/Non-resident
Indians to become an industrial partner in NMITLI projects.
Flexibility to Convert Loan into Equity
Launching a new product or setting a knowledge based new venture requires investment
on many fronts particularly for capital-intensive infrastructure, manpower, technology
costs, working capital etc. Governments all over the world, particularly in developed
countries endeavor to support entrepreneurs in different ways to ease the burden of
initial investment. The industrial partner under NMITLI has to invest for commercialization
of technology/products and at the same time has to return the loan to CSIR albeit in
installments. This burden of loan repayment can be further reduced by converting loan
into equity. Therefore, with this provision and on the request of industrial partner, loan
given to it may be converted into equity.
Advantages of NMITLI Expansion:
As others are emulating, NMITLI is endeavoring to position higher in the innovation
development. The proposal will therefore:
1. enable CSIR to experiment newer models of innovation development in Public-
Private-Partnership (PPP) mode, which could later become models for others to
emulate;
2. encourage to develop products / processes based on innovation and thereby help
Indian industry emerge as a technology leader in the identified domain;
3. encourage venture capital funds to venture into more risky R&D areas; 61
Technology Management 4. act as a catalyst to bring better co-ordination among various departments of
government in the R&D sphere and avoid unnecessary duplication, apart from
generating intellectual capital, technologies and products in cutting edge areas; and
5. enhance national competitiveness.
[Source: Department of Science and Technology, GOI. February 27, 2009]

2.4.4 Confederation of Indian Industry (CII)

CII was founded 110 years ago. It is a very large and important Confederation of industry
in India. It is a 6100-member organization, with a network of 56 offices in India, 8
overseas and institutional partnerships with 240 organizations in 101 countries. Technology
is a focus area in CII. The overall objective of CII initiatives in technology front is to
enhance competitiveness of industry through technology. A few important initiatives of
the CII in technology are:
1. It has a National Committee on Technology and Innovation. Its objectives are: (a)
to interact with the Government (b) to understand the issues of technology
development in industry and how to address these issues with Government (c) how
to share best practices on technology through partnerships (d) how to build
international linkages for the benefit of Indian industry through technology and (e)
to look at leveraging this partnership with industry, R&D institutions and academia
and how to make it happen to facilitate science & technology.
2. Under the National Committee, there is a Task Force on "Driving Ideas to market".
This task force includes members from industry, government, institutes and financial
organization. It aims to identify/select bright ideas, help in development of the idea
& promote amongst industry to get a suitable partner for commercialization of the
idea/ innovation.
3. To create linkages with other countries, 'Technology Summit and Technology
Platform' - www.technologysummit.org - and 'Design Summit' - www.ciionline.org/
design - are organized annually. These provide a platform for the Indian industry to
network with the best technology institutions and industry from the partner country.
4. 'Steer the Big Idea' - Young Inventors Initiative - This Programme has been jointly
launched by the Department of Science and Technology and the CII with the
objective (a) to promote and nurture inventions and innovations among students /
youth & to contribute to the development of creativity of younger generation (b) to
provide a platform to young innovators to interact with industry for mutual benefit
(c) to encourage students / youth to embody their ideas in physical form (d) to
recognise and reward outstanding works (inventions) created and (e) to
institutionalise the invention promotion initiatives in the country. Under this initiative,
students/ youth are invited to invent new things. After screening, good projects are
displayed in an exhibition. As part of the initiative, participation of inventors in
International Exhibition of Young Inventors is also organised.
2.4.5 Federation of Indian Chamber of Commerce and Industry (FICCI)
It is a very large and important apex chamber of commerce and industry in India. It was
established in 1927. It has a nationwide membership of over 1500 corporate and over
500 chamber of commerce and business associations.
FICCI gives importance to innovation as a very important component of business
62 development and growth. It has a portal-www.techno-preneur.net - jointly developed by
FICCI and National Science and Technology Entrepreneurship Development Board Technology Policy Strategy
(NSTEDB), Department of Science and Technology. The portal aims at assisting budding
entrepreneurs, especially technopreneurs with all the information relevant for setting up
new enterprises. It brings together three aspects of business, namely, technology, finance
and management by providing information on industrial policies, incentives, project profiles,
new technologies, funding options, technology & equipment sources and contact
directories. It also provides with a set of online tools for project development, evaluation
& preparation of feasibility studies.

Check Your Progress

Prepare a study note on the science and technology policy of India.

2.5 LET US SUM UP

Technology policy strategy plays a crucial role in private as well as public sector
establishments, especially due to the fast changing world order.
A business strategy identifies target markets and the value proposition that will win in
those markets. To implement the business strategy, the enterprise requires particular
operational capabilities; for example, a high tech company pursuing a low-cost strategy
may need the ability to build entirely to order and limit inventory risk. The most successful
companies will craft their business strategies with full regard for any gaps or misalignments
between current and required enterprise capabilities-including, of course, its technology
capabilities. Smart enterprises today are rightfully pursuing alignment of technology with
the business, and that in itself is no small achievement. But for some, the right level is
really synchronization, where technology shapes (not just enables) strategic choices.
And at the highest level of achievement, business and technology leadership actually
converges, reflecting an executive and management team that has achieved an
extraordinary level of cross-understanding and vision for the future.
Science has provided us remarkable insights into the world we live in. The scientific
revolutions of the 20th century have led to many technologies, which promise to herald
wholly new eras in many fields. As we stand today at the beginning of a new century, we
have to ensure fullest use of these developments for the well being of our people.
Government enunciates to ensure that the message of science reaches every citizen of
India, man and woman, young and old, so that we advance scientific temper, emerge as
a progressive and enlightened society, and make it possible for all our people to participate
fully in the development of science and technology and its application for human welfare.
The key elements of the strategy will be to evolve suitable mechanism by which
independent inputs on science and technology policy and planning are obtained on a
continuous basis from a wide cross section of scientists and technologists.
A concerted strategy is necessary to infuse a new sense of dynamism in our science and
technology institutions. The science departments, agencies and other academic institutions,
including universities i.e., the science and technology system as a whole, would be
substantially strengthened, given full bureaucratized.
Finally the objectives of Science and Technology Policy are to adapt to the rapidly changing
world order.
63
Technology Management
2.6 KEY TERMS
DST: Department of Science and Technology.
DSIR: Department of Scientific & Industrial Research.
CSIR: The Council of Scientific and Industrial Research.
NISSAT: National Information System for Science and Technology.
Technology Foresight: Technology foresight, which involves not only forecasting and
assessment of technologies but also their social, economic and environmental
consequences.
New Vision: To build a new and resurgent India that continues to maintain its strong
democratic and spiritual traditions, that remains secure not only militarily but also socially
and economically.
DST: The Department of Science & Technology plays a pivotal role in promotion of
science & technology in the country.
IDP: The Department of Science & Technology (DST) has been promoting the area of
Instrumentation through its Instrumentation Development Programme (IDP). The
programme focuses on strengthening indigenous capability for research, design,
development and production of instruments in the country.
CII: Confederation of Indian Industry.
FICCI: Federation of Indian Chamber of Commerce and Industry.
Business Strategies: A business strategy identifies target markets and the value
proposition that will win in those markets.

2.7 TEST QUESTIONS

1. What do you understand by the technology policy strategy adopted by India?
2. Write a note on the features of the Science and Technology policy 2003.
3. What are the implications of the government's science and technology policy on
the Indian Industry?
4. What is the role and importance of CII and FICCI in enhancement of new technology
in Indian industry?

2.8 SUGGESTED READINGS

Noori H & Radford R.W., Reading and cases in the Management of New Technology,
Englewood Cliffs, N.J. Prentice Hall, 1990.
Gerard H. Gaynor, Handbook of Technology Management, Mc-GrawHill.
www.indiacode.nic.in.
Reports of Science and Technology Department, Government of India.

64
UNIT II
LESSON

3
TECHNOLOGY FORECASTING
CONTENTS
3.0 Aims and Objectives
3.1 Introduction
3.2 Need for Technology Forecasting
3.3 Methodology and Methods
3.4 Trend Analysis
3.5 Analogy Technique
3.6 Delphi Method
3.7 Soft System Methodlogy
3.8 Let Us Sum Up
3.9 Key Terms
3.10 Test Questions
3.11 Suggested Readings

3.0 AIMS AND OBJECTIVES

After studying this lesson, you will be able to explain:
1. The need, methodology and importance of technology forecasting.
2. The analysis of trends in technology forecasting.
3. The Analogy technique and Delphi method.
4. The key features of Soft System Methodoloy.

3.1 INTRODUCTION
The process of technology forecasting includes conducting market research for new and
innovative products and draw a conclusion or forecast predictions about the would be
technology in the long run or at a span of time in the future. This forecasting is complicated
by the fact that customers have no experience with them. In this paper we will argue
how a conjoint analysis can be used to measure the gap between the intended value map
of the company and the desired value map of its customers to predict market success of
new products and services. For this study a customer value model has been developed
that describes how customers choose between products and how a company can base
its business development activities on these choices. To test the customer value model, a
case study has been conducted at a large R&D intensive company in office equipment to
augment a technical product with additional services.
Technology Management In a conjoint analysis different service offers were simulated as in a real-world purchase
situation. Based on the results, types of newly designed services that increase the expected
value to the customers could be brought forward. For the company at issue, the current
findings have been the starting point for a new way of looking at business development,
monitoring changes in customers perceptions, and adapting the offered customer value
to these changes.

Forecasting is designed to help decision making and planning in the present. Forecasts
empower people because their use implies that we can modify variables now to alter (or
be prepared for) the future. A prediction is an invitation to introduce change into a system.

There are several assumptions about forecasting:

1. There is no way to state what the future will be with complete certainty. Regardless
of the methods that we use there will always be an element of uncertainty until the
forecast horizon has come to pass.

2. There will always be blind spots in forecasts. We cannot, for example, forecast
completely new technologies for which there are no existing paradigms.

3. Providing forecasts to policy-makers will help them formulate social policy. The new
social policy, in turn, will affect the future, thus changing the accuracy of the forecast.

The characteristic of technological forecasting is uncertainty about the rate of change of

technological capabilities. Many capabilities tend to grow exponentially until they reach
some natural limit: for example, aircraft speed, computer memory size and memory access
speed, horsepower per liter of internal combustion engines, among many others. This is
because new technology builds on older technology, and synergism results from the
combination. When one technology impinges on another, the synergy often results in an
unexpected and sudden increase in capability. For instance, the development of
microcomputers depended on the combined technologies of electronic computer circuitry,
miniaturization of electronic circuits, efficient computer programming, and development of
information storage devices, Such synergies are difficult to forecast. In the early 1950s,
noted science fiction author Isaac Asimov wrote a short story set five hundred years in the
future. One artifact featured in this story of the future was a small, hand-held device that
could perform complex mathematical calculations when its buttons were properly pushed.

3.1.1 Meaning of Technology Forecasting

Primarily, a technological forecast deals with the characteristics of technology, such as
levels of technical performance, like speed of a military aircraft, the power in watts of a
particular future engine, the accuracy or precision of a measuring instrument, the number
of transistors in a chip in the year 2015, etc. The forecast does not have to state how
these characteristics will be achieved.
Secondly, technological forecasting usually deals with only useful machines, procedures
or techniques. This is to exclude from the domain of technological forecasting those
commodities, services or techniques intended for luxury or amusement.

Technological Forecasting (TF) focuses on predicting what future technologies are likely
to emerge and when they are likely to be economically feasible (Balachandra). In an era
68
when technological innovations have become the rule rather than the exception, managers Technology Forecasting

must be able to anticipate new developments. If a manager invests heavily in existing

technology (such as production processes, equipment and computer systems) and the
technology becomes obsolete in the near future, the companys very survival becomes
difficult. Given the growing importance of technology and the rapid pace of technological
growth, it follows that managers will be compelled to look into technological forecasting
more closely and attentively.
Box 3.1: Technological Forecasting: Definitions

1. The description of prediction of a foreseeable technological innovation, specific

scientific refinement, or likely scientific discovery, that promises to serve some useful
function, with some indication of the most probable time of occurrence.

2. Forecasting means systems of logical analysis that lead to common quantitative

conclusions (or a limited range of possibilities) about technological attributes and
parameters, as well as technical economic attributes. Such forecasts differ from opinion
in that they rest upon an explicit set of quantitative relationships and stated
assumptions, and they are produced by a logic that yields relatively consistent results.

3. A prediction, with a level of confidence, of a technological achievement in a given

time frame with a specified level of support.

Source:

1. R W Prehoda, Designing the Future The Role of Technological Forecasting (London:

Chilton Books, 1967).

2. R Bright ed, Technological Forecasting for Industry and Government: Method and
Applications (Englewood Cliffs, N J: Prentice-Hall, 1968.)

3. M J Cetron, Technological Forecasting A Practical Approach (London: Gordon and

Breach, 1969).

3.1.2 Features
l Use current knowledge to build the future: The primary role of TF is to evaluate
todays knowledge systematically, thereby identifying what can be achieved and how
one technological advance in conjunction with another would satisfy human needs.
Box 3.2: Identifying Specific Technology Gaps

Quantitative techniques often help in the identification of technological gaps in a specific

area. The following sources help in this regard:

l Feedback data on the performance of existing processes, equipment, product

parameters vis--vis other competitions.

l Failure analysis reports (where, when, why, who is responsible etc.)

l Technology scanning by product groups.

l Active interaction with market forces, foreign companies, consultancy agencies etc.

l Close monitoring of competitors moves and actions.

l Visits to user organisations, research organisations, technology development centres,

seminars, international trade fairs etc.

69
Technology Management l Specific scientific refinement: TF puts exclusive emphasis on a specific
development (in terms of threats, opportunities or innovations) rather than undertaking
a macro level study of various factors which ultimately may derail the study.
Such a concentrated effort, of course, is generally preceded by a broad investigation
to ensure that the effort is being allocated to the right task.
l Promises to serve some useful function: TF is basically guided by market needs.
As one study indicated real needs result in accelerated technological growth. In
TF, it is always necessary to draw the distinction between what could happen
because of mans capabilities and what is likely to occur because of what he wants.
Practical objectives are essential for technological progress and this can come only
when TF takes market requirements into account sincerely.
l Quantitative conclusions to guide judgement: TF offers useful quantitative data,
based on which executives can take informed, reliable decisions.
Technological forecasting, it must be mentioned here, cant help the decision maker to
predict the future with certainty, but it can assist him in refining his judgements. The
value of forecasting is highly dependent on the quality of informational inputs to the
forecasting process (information from the past plus the knowledge of the present) and
the calibre of the minds applied to it. Forecasting techniques can only be aids to the
process and care should, therefore, be taken to see that TF does not absorb greater
resources than can be justified in economic terms.

3.2 NEED FOR TECHNOLOGY FORECASTING

3.2.1 Leveraging External Expertise to Forecast Technology
By Robert R. Andrews*, Medical Division Manager, Foster-Miller Inc.
Market leaders across all industries have at least one common trait: vision. This is especially
true in the medical industry, where new product breakthroughs often result from a
revolutionary technological advancement. To obtain or sustain a competitive edge,
identifying and incorporating emerging technologies early on is mandatory. But short of
a crystal ball, how can medical companies predict what technologies will be available in
the future? The answer is technology forecasting.
Technology forecasting is a strategic effort that identifies developing technologies that
will impact the market two, five or ten years down the road. Companies that incorporate
developing technologies create innovative medical devices that dominate the industry
and dictate price. On the other hand, firms focusing solely on the present or near term
technologies will be forced to play catch-up, making minor alterations to existing products
that already lead the market. To differentiate their me too products, these firms must
resort to competing on price and this is clearly not a profitable alternative.
A well-planned product strategy can steer the staffing, budget and resource allocation
decisions of medical companies. This framework can be created by the steps outlined
below to identify customer needs, search for technologies to help meet these needs, and
shape strategy accordingly. With this tool, companies can guide themselves in the direction
of market leadership.

* Robert R. Andrews is medical division manager for the commercial group at Foster-Miller Inc., a QinetiQ
company. He has more than 25 years of medical device experience managing product development and operations.
He has 11 issued U.S. medical device patents. He received an MBA from Bryant College and Bachelors and
Masters degrees in plastics engineering from The University of Lowell. He can be contacted at (781) 684-4639
70 or randrews@fostermiller.com.
Step 1 - Identify and Prioritize Customer Needs Technology Forecasting

The incorporation of new technologies into a product must satisfy a real market need or
it will do nothing for a companys bottom line. Customer research can effectively identify
unmet needs. Then, resources can be allocated to finding innovative technologies to
create new solutions to meet these needs, instead of being allocated to modifying existing
products for line extensions, which are usually less profitable.
Due to a growing elderly population and rising healthcare costs, the need to monitor
patients from their homes became more evident. The advancement of wireless technology
made possible the development of cost-effective devices for convenient and efficient
patient home care. Now, patients with low mobility can be medically diagnosed and
treated inexpensively in the comfort of their own homes.
There are a number of tools that can enable you to understand market needs, each with
its own distinct advantages. These include one-on-one interviews, focus groups, telephone
surveys, and conjoint and factor analyses. Conjoint analysis, for example, allows you to
understand how customers value product attributes individually and in a group, providing
meaningful insight into how tradeoffs are made between competing characteristics. If
optimizing one attribute impinges on the second, it is useful to know which of the two
characteristics is deemed more important. Factor analysis on the other hand allows you
to create different bundles of product characteristics and determine which of the bundles
would attract the greatest number of users. Finally, focus groups are very helpful in idea
concept testing and understanding the hospital environment, which have a major impact
on the success of a product.
In order to identify market niches that a given company may be able to fill, these tools must
be employed by a firm that can objectively canvass the field and is familiar with the process
and medical technology and devices. An external research and development firm fits this
profile for several reasons. First, a third-party firm has objectivity with no financial interest
in one technology or device. An experienced partner will also have the resources and
contacts to successfully obtain customer feedback and this will maintain your companys
anonymity. In addition, your partners medical knowledge will facilitate the identification of
industry trends and future needs. Lastly, because R&D firms generally have wide-ranging
knowledge in other industries, they can uncover technology-based business opportunities
that may not be apparent to a firm focused solely on the medical industry.
Once market needs are uncovered, it is important to prioritize these needs according to
urgency. This will provide an estimate of the price the end-user is willing to pay for a
solution, which will further guide resource allotment. The list should be again refined to
include only those needs that can be solved within the scope of your companys goals.
Companies should look to outside resources to fill gaps in core competencies needed to
execute the development program. This may involve partnering with or acquiring another
medical entity or working with an engineering firm. It is important for the firm to identify
how it is going to create and capture value from its innovation activities.
Market needs analysis helps you understand the competition by identifying customer
dissatisfaction with current products. Learn from your competitors mistakes and strive
to better serve customers with a novel product.
For example, drugs administered to cancer patients in conventional chemotherapy
treatments must diffuse across cell membranes to attack cancer cells. However, this
method has several drawbacks, including its lengthy treatment process and large drug
dosage requirement, which often harms normal cells and tissue. Advancements in
71
nanotechnology will make drug delivery via nanoparticles an option. This new treatment
Technology Management will be a vast improvement over current chemotherapy treatments because it will cause
less damage to healthy cells and be more effective against tumor growth.
Step 2 - Ideate
Group ideation sessions can produce innovative solutions to unmet market needs. The
ideation process utilizes brainstorming, forward-looking vision and multidisciplinary
knowledge to furnish truly novel solutions. The end result will be product concepts that
can potentially solve customer problems and dominate the market long-term.
Ideation sessions work best with a diverse team able to tap into industry-spanning skills.
If an R&D firm will lead this session, it is important to select a partner with medical
industry knowledge complemented by multidisciplinary expertise. Only partners with
deep and wide-ranging experience will be able to bring appropriate physicians, field
professionals, academic experts and skilled engineers to the table to devise ideal solutions.
Once several concepts have been formulated, additional research must be conducted.
This should serve to narrow down the idea pool to include only those that are feasible
and in line with the companys marketing plan.
Step 3 - Search for Promising New Technologies
Because new technologies turn product concepts into reality and can create competitive
advantages, the need to search for emerging technologies cannot be overstated.
For example, the advancement of bio-electromagnetic resonance technology has the
potential to drastically change the blood glucose monitoring process for diabetics. This
technology utilizes an external device to detect changes in a persons electrical impedance
in response to a glucosespecific electromagnetic wave that it emits. This non-invasive
procedure avoids the discomfort and inconvenience associated with traditional monitoring
procedures, which require diabetics to draw blood to test blood sugar levels. This
improvement in patient care can be leveraged as a competitive advantage.
It is imperative that you align yourself with a well-connected and experienced R&D firm
on the forefront of scientific advances that has a wealth of contacts and relationships
with institutions working on emerging technologies. This will widen the search parameters
to ensure that you are kept abreast of the latest technological developments, which will
in turn facilitate efforts to bring possible solutions to fruition.
Because all technologies pass through a maturity curve, it is helpful to plot them on a
timeline. Older technologies are mature today and newer ones are becoming mature
over time. Categorizing technologies in time horizons according to their development
stage will indicate at what point these technologies may impact your business and be
integrated into product development.
An example of time horizon groupings is described below:
l Short Term Horizon: This segment should include technologies that are estimated
to impact the market in 1 to 2 years. These technologies usually have already been
applied in industry. These technologies can be used in line extensions or product
modifications to keep pace with the competition.
l Medium-Term Horizon: Often still in the research stage, technologies included in
this horizon might need 2 to 5 years of development to be utilizable. Technologies in
this category can deliver products that create a competitive advantage.
72
l Long-Term Horizon: Technologies that are just evolving and may take 5 to 10 Technology Forecasting
years or more to hit the market are included in this category. These technologies
can enable breakthrough products that alter the competitive landscape.
Step 4 - Analyze Solutions Impact on the Company
Novel solutions are only successful if practical for your company. It is extremely costly
to dedicate resources to initiatives that fail. This is especially true in the increasingly
competitive medical device industry where profit margins are diminishing and R&D
costs are three times or more the overall average for all manufacturers. Thus, it is
imperative that projects be evaluated extensively before embarking on lengthy and costly
development programs. Refine the product strategy by eliminating ideas that could fall
prey to the common causes of failure discussed below.
First, make sure that short-term projects consist of product concepts that fall within core
competencies available to the company. Many manufacturers have failed by hastily
entering markets without the necessary skills to support the product. This not only
jeopardizes new product success but also diverts resources away from areas of expertise
and dilutes brand recognition. Utilize a multidisciplinary partner to supplement skills in
diverse areas, but only embark on developing solutions in the near-term whose main
focuses fall within your firms scope. This will allow you to capitalize on your firms
strengths and skill sets to create a competitive advantage.
It should be noted that projects on the fringe of your companys expertise need only be
excluded from short-term plans. If a strong opportunity exists for future product
development, efforts can begin in the present to develop expertise to support the project.
Adding to your companys core competency without the pressure of short-term project
time constraints can serve to strengthen your market position. Competencies can be
grown internally, which may be time consuming, or obtained by partnering with engineering
companies, academic institutions, or other medical companies.
In addition, measure new ideas against criteria such as budgets, staff limitations, resource
availability and project timeliness to test project feasibility. Evaluate early on the estimated
project completion length and estimate funds that may be required. Projects that place
intense strain on your firms finances or staff have a higher risk and greater cost of failure.
To be successful, the proposed solution should also be differentiated and proprietary to
you. A novel technology must reduce cost, improve patient care or create significant
improvement to be market leading.
Any solution that poses a strong threat of failure based on the abovementioned factors
should be eliminated from the product strategy. Only the most effective and feasible
concepts should be included in strategic planning, the next step of technology forecasting.
Step 5 - Develop a Strategic Plan
A refined and focused product strategy will guide the formation of a strategic plan,
presenting different implications for each of the time horizons (short-, medium- and long-
term). This plan will dictate product development direction and must be kept in line with
the companys marketing objectives.
Technologies in the Short-Term Horizon can be included in concrete product development
plans. Because these advancements are finalized, there is minimal risk that these
technologies will alter the device development timeline. However, to secure maximum
73
Technology Management advantage, medical device companies must work quickly to incorporate technologies in
this horizon, before the competition does.
Technologies in the Medium-Term and Long-Term Horizons should not be included in
nearterm product development programs. There is no guarantee that these technologies
will be completed in accordance with your projects timeline, and it is costly and time-
consuming to sink resources into developing the technology and the product concurrently.
Moreover, technologies not fully finalized are often modified. These alterations can
considerably affect and delay product development. Relying on unrefined technologies
for short-term product development is very risky.
However, technologies in the Medium-Term and Long-Term Horizons do require some
degree of planning. You must stay abreast of developments and continually conduct
research. Again, it is useful to call on an outsourced partners relationships with research
institutions developing these technologies to be updated on advancements.
Mapping out the direction of research and development efforts in accordance with time
horizons and updating plans continually can help companies shape strategy. Resources
can be properly allocated, with heavy resources dedicated to near-term technologies.
Staffing decisions are also impacted. If a medium-term technology can revolutionize the
development of a device with market-leading potential, companies may plan to staff up
to complete the project. Or, companies may look to outsource to provide quick and
disposable staff support to near-term projects that need a bolstered workforce.
Tip - Continually Monitor the Competition
Bringing a novel medical device to market will not be profitable if the competition is
launching a better product using a newer and more efficient technology. It is imperative
that medical device firms continuously monitor their competitors and search for
technologies that may disrupt their path to market leadership. Be aware of new patent
filings, read institutional research publications and technical journals to stay in the know
on industry happenings.
If a medical device company does succeed and attains market leadership, precautions
must be taken to protect this innovation. Only work with an outsourced partner that
readily agrees to assign project intellectual property rights to your company. Signing
exclusive agreements with research institutions that are developing potentially useful
technologies will also help protect your proprietary advantage.
Roadmap to Success
Whether your company aims to attain or maintain market leadership, technology
forecasting must be a core aspect of organizational culture. By identifying emerging
technologies and their estimated availability, this methodology creates a roadmap that
provides direction to important strategic decisions. By predicting and preparing for future
advancements, medical firms can be first to integrate pioneering technologies. Marrying
these breakthroughs with customer needs will lead to the development of highly demanded,
differentiated and innovative medical products, leading to profitable market dominance.
3.2.2 Six Tips for Effective Technology Forecasting
1. Identify and prioritize customer needs to uncover potential market niches.
2. Hold ideation sessions to find solutions to meet these unsatisfied needs.

74
3. Search for promising new technologies to facilitate development of devised solutions.
4. Evaluate the impact new solutions will have on your company. Technology Forecasting

5. Develop a strategic plan to map out companys integration of emerging technologies.

6. Be aware of competitors and new technologies that could affect your companys
path to market leadership.
The need for technology forecast arises because of a number of reasons. Primarily, a
technological forecast deals with the characteristics of technology, such as levels of
technical performance, like speed of a military aircraft, the power in watts of a particular
future engine, the accuracy or precision of a measuring instrument, the number of
transistors in a chip in the year 2015, etc. The forecast does not have to state how these
characteristics will be achieved. Secondly, technological forecasting usually deals with
only useful machines, procedures or techniques. This is to exclude from the domain of
technological forecasting those commodities, services or techniques intended for luxury
or amusement.
Future is full of uncertainty and risk. It is certainly different from the present. The
products, organisations, skills and attitudes which today serve a business well may not fit
in with the conditions of tomorrow. To survive, a business must change. And the changes
must be timely and appropriate to meet the needs of the future (Twiss, 1980). Most of
the time, the difficulty lies in prognosticating what these future needs will be. In any
case, an attempt must be made by managers to find the nature and impact of changes
that are likely to occur in future with frustrating regularity. Forecasts help an organisation
in the following ways:
(a) Better understanding of the future: Forecasts help a firm gain a better
understanding of the threats and opportunities likely to be faced by established
products and markets.
(b) Face challenges head on: Such an understanding helps a firm to move ahead
with confidence, to face challenges purposefully instead of reacting to critical events
in a belated manner.
Box 3.3: Gillette Dominates the Market

Gillette dominates the world market for wet shave products, specialty razors and razor
blades. A series of timely innovations has kept the company ahead of its rivals in shaving
systems, disposable blades and double edge blades. Since 1990, its products, Sensor and
Sensor Excel razors, have grabbed nearly 30 per cent share of the US market and sales in
other countries are also very strong. Gillette launched a successor to Sensor, the Mach 3, a
triple-bladed razor that is expected to generate $1 billion in annual revenues. The oral-B
division also is a cash cow. With the purchase of Duracell, the leading producer of alkaline
batteries, Gillette added yet another potential cash cow to its portfolio. The company is
spending heavily on R&D to improve its market share in other segments: toiletries, writing
instruments (parker pen range) etc.

(c) Redefine business properly: Technological forecasts may, sometimes, force

a company to redefine its business properly. For example metal can
manufacturers had to redefine their businesses in view of the increasing
competition from glass, plastics etc. Jute manufacturers, likewise, had to
reinvent themselves after facing severe competition from plastic and paper
manufacturers who have come out with better packaging material. Gillette,
over the years, had continually developed innovating razor systems to overcome
competition and stay ahead in the market-place.
75
Technology Management (d) Avoid costly mistakes: Many forecasts may not yield concrete results the time
and effort spent on the activity may seem useless in the face of future uncertainties.
However, if carried out sincerely, forecasts will lead to fewer errors and the avoidance
of some of the most costly mistakes. As Drucker remarked decisions exist only in
the present. The question that faces the long range planner is not what we should
do tomorrow; it is, what we have to do today to be ready for an uncertain tomorrow.
Even when the current payoffs are low, certain decisions have to be taken today so
that the benefits could accrue in future.
In summary, we can conclude that all companies should undertake some form of
technological forecasting (TF). The amount of effort devoted to TF should, however,
take into account (a) the rate of change in the environment (b) the planning horizon
determined by the technological and marketing lead times for new products or
processes (c) the complexity of the underlying problems (d) the R&D strategy (e)
the size of the company only in so for as the availability of resources limits the
choice of techniques which can be afforded.

3.3 METHODOLOGY AND METHODS

Commonly adopted methods of technology forecasting include the Delphi method, forecast
by analogy, growth curves and extrapolation. Normative methods of technology forecasting
- like the relevance trees, morphological models, and mission flow diagrams - are also
commonly used.
Intuitive Methods: In this case, the information regarding various technological indicators
is collected and analysed (expert opinion, polls, panels, Delphi). The analyst by, using his
judgement and experience, summarises the main factors, draws inferences and then
develops various forecasts. These forecasts are prepared continuously and, as and when
necessary, they are revised (in the light of fresh information). Forecasts, thus, are not
products of scientific data but are the results of analysts conclusions based on market
survey and opinions of experts.
Forecasting method: It is based on a combination of intuition, insight, and luck. Psychics
and crystal ball readers are the most extreme case of genius forecasting. Their forecasts
are based exclusively on intuition. Science fiction writers have sometimes described
new technologies with uncanny accuracy.
There are many examples where men and women have been remarkable successful at
predicting the future. There are also many examples of wrong forecasts. The weakness
in genius forecasting is that its impossible to recognize a good forecast until the forecast
has come to pass.
Some psychic individuals are capable of producing consistently accurate forecasts.
Mainstream science generally ignores this fact because the implications are simply to
difficult to accept. Our current understanding of reality is not adequate to explain this
phenomena.
Many scholars have proposed a variety of ways to categorize forecasting methodologies.
Relationships often exist between events and developments that are not revealed by
univariate forecasting techniques. The cross-impact matrix method recognizes that the
occurrence of an event can, in turn, effect the likelihoods of other events. Probabilities are
assigned to reflect the likelihood of an event in the presence and absence of other events.
The resultant inter-correlational structure can be used to examine the relationships of the
76 components to each other, and within the overall system. The advantage of this technique
is that it forces forecasters and policy-makers to look at the relationships between system Technology Forecasting
components, rather than viewing any variable as working independently of the others.
Scenario
A scenario is a written description of a possible future. Multiple scenarios are simply
written accounts of several possible futures. Some of the typical questions that need to
be looked into while writing the scenario for a large retail chain relating to electronic
commerce would be:
l How could developments in electronic commerce significantly change traditional
retailing?
l What types of strategies might be useful in preventing, diverting, encouraging or
dealing with the possible future for electronic commerce?
Scenarios offer a wider range of possibilities against which strategies can be evaluated.
They help in the identification of events that require the development of contingency
plans. They assist managers and others to spot patterns, generalisations and
interrelationships.
The scenario is a narrative forecast that describes a potential course of events. Like the
cross-impact matrix method, it recognizes the interrelationships of system components.
The scenario describes the impact on the other components and the system as a whole.
It is a "script" for defining the particulars of an uncertain future.
Scenarios consider events such as new technology, population shifts, and changing
consumer preferences. Scenarios are written as long-term predictions of the future. A
most likely scenario is usually written, along with at least one optimistic and one pessimistic
scenario. The primary purpose of a scenario is to provoke thinking of decision makers
who can then posture themselves for the fulfillment of the scenario(s). The three scenarios
force decision makers to ask: 1) Can we survive the pessimistic scenario, 2) Are we
happy with the most likely scenario, and 3) Are we ready to take advantage of the
optimistic scenario?
1. Decision trees: Decision trees originally evolved as graphical devices to help
illustrate the structural relationships between alternative choices. These trees were
originally presented as a series of yes/no (dichotomous) choices. As our
understanding of feedback loops improved, decision trees became more complex.
Their structure became the foundation of computer flow charts.
Computer technology has made it possible create very complex decision trees
consisting of many subsystems and feedback loops. Decisions are no longer limited
to dichotomies; they now involve assigning probabilities to the likelihood of any
particular path.
Decision theory is based on the concept that an expected value of a discrete variable
can be calculated as the average value for that variable. The expected value is
especially useful for decision makers because it represents the most likely value
based on the probabilities of the distribution function. The application of Bayes'
theorem enables the modification of initial probability estimates, so the decision
tree becomes refined as new evidence is introduced.
Utility theory is often used in conjunction with decision theory to improve the decision
making process. It recognizes that dollar amounts are not the only consideration in
the decision process. Other factors, such as risk, are also considered. 77
Technology Management 2. Econometric Models: These are systems of simultaneous multiple regression
equations involving several predictor variables that are used to identify and measure
relationships or interrelationships that exist in the field of technology relating to an
area. Such models try to predict the likely future directions of the technological growth
and the impact of changes such as proposed tax concessions to computer education
firms, sops to software products, benefits to software exporters etc on the growth of
qualified, competent computer professionals in the country. The development of
econometric models is quite complex and expensive. As a result, such models are
beyond the scope of most managerial jobs and all but very large organisations.
3. Monitoring Methods: These methods offer early warning signals of important
changes in established patterns and relationships so that managers can assess the
likely impact and plan responses if required. Quantitative approaches to monitoring
generally depend on a tracking signal. A tracking signal is a mathematically derived
measure that is based on recent fluctuations in a variable of interest and is designed
to find possible important deviations presently occurring that are worthy of
managerial attention. Once designed, the tracking signal is employed to measure
present movements in the variable of interest; it is set so that it automatically signals
when deviations from expected patterns are merely random fluctuations that can
be ignored or represent a possible non-random shift in direction. Manager may
then be asked to evaluate the importance of the apparent pattern shift.
Whilst the practical utility of TF is still limited, its use is likely to increase once
managers gain an insight of what it can do to improve R&D decision making.
However, as a word of caution, it must be stated that TF alone will never completely
remove the uncertainties inseparable from any consideration of the future.
3.3.1 Combining Forecasts
It seems clear that no forecasting technique is appropriate for all situations. There is
substantial evidence to demonstrate that combining individual forecasts produces gains
in forecasting accuracy. There is also evidence that adding quantitative forecasts to
qualitative forecasts reduces accuracy. Research has not yet revealed the conditions or
methods for the optimal combinations of forecasts.
Judgmental forecasting usually involves combining forecasts from more than one source.
Informed forecasting begins with a set of key assumptions and then uses a combination
of historical data and expert opinions. Involved forecasting seeks the opinions of all
those directly affected by the forecast (e.g., the sales force would be included in the
forecasting process). These techniques generally produce higher quality forecasts than
can be attained from a single source. Combining forecasts provides us with a way to
compensate for deficiencies in a forecasting technique. By selecting complementary
methods, the shortcomings of one technique can be offset by the advantages of another.
3.3.2 Difficulties in Forecasting Technology
Clarke describes our inability to forecast technological futures as a failure of nerve.
When a major technological breakthrough does occur, it takes conviction and courage to
accept the implications of the finding. Even when the truth is starring us in the face, we
often have difficulty accepting its implications.
Clark refers to this resistance to change as cowardice, however, it may be much deeper.
Cognitive dissonance theory in psychology has helped us understand that resistance to
change is a natural human characteristic. It is extremely difficult to venture beyond our
78 latitudes of acceptance in forecasting new technologies. Clarke states that knowledge
can sometimes clog the wheels of imagination. He embodied this belief in his self- Technology Forecasting
proclaimed law:
"When a distinguished but elderly scientist states that something is possible, he is almost
certainly right. When he states that something is impossible, he is very probably wrong."
Nearly all futurists describe the past as unchangeable, consisting as a collection of
knowable facts. We generally perceive the existence of only one past. When two people
give conflicting stories of the past, we tend to believe that one of them must be lying or
mistaken. This widely accepted view of the past might not be correct. Historians often
interject their own beliefs and biases when they write about the past. Facts become
distorted and altered over time. It may be that past is a reflection of our current conceptual
reference. In the most extreme viewpoint, the concept of time itself comes into question.
The future, on the other hand, is filled will uncertainty. Facts give way to opinions. As de
Jouvenel points out, the facts of the past provide the raw materials from which the mind
makes estimates of the future. All forecasts are opinions of the future (some more
carefully formulated than others). The act of making a forecast is the expression of an
opinion. The future, as described by de Jouvenel, consists of a range of possible future
phenomena or events. These futuribles are those things that might happen.
3.3.3 Defining a Useful Forecast
Science fiction novelist Frederik Pohl has suggested that the "only time a forecast has
any real utility is when it is not totally reliable". He proposes a thought experiment where
a Gypsy fortune teller predicts that we will be run over and killed when we leave the tea
room. If we know that the Gypsy's predictions are one hundred percent accurate, then
Pohl states that the fortune is useless, because we would be unable to alter the forecast.
In other words, predictions only become useful when they are not completely reliable.
The apparent paradox created by Pohl's thought experiment is only a function of the
particular situation. The paradox exists only when 1) we want the future to be different
than the prediction, and 2) when we believe that there is no way for us to adapt to or
affect the forthcoming changes. Pohl's thought experiment actually doesn't even meet
that criteria, since one could present a convincing argument that it is more desirable to
spend the rest of our lives confined to the comfort of a tea room than to leave and meet
certain death. Obviously, our new life would be difficult to accept and adapt to, but it
could be done. Prisoners do it all the time.
A forecast can be one hundred percent accurate and still be useful. For example, suppose
our Gypsy had told us that after leaving her tea room we would safely return home.
Again, since we know that her forecasts are completely accurate, we would receive
emotional comfort from her predictions. In a more tangible example, suppose the prediction
is that our manufacturing company will receive twice as many orders for widgets as we
had anticipated. Since the forecast is one hundred percent accurate, we would be wise
to order more raw materials and increase our production staff to meet the coming demand.
The goal of forecasting is to be as accurate as possible. In the case of business demand
forecasting, it is naive to suggest that an accurate forecast is useless. On the contrary, a
more accurate forecast enables us to plan the use our resources in a more ecological
fashion. We can minimize waste by adapting to our expectations of the future.
It is sometimes useful in thought experiments to look at the situation from the opposite
perspective. Suppose we know that our Gypsy is always wrong in her predictions. Her
accuracy is guaranteed to be zero. Note that this is different than random forecasts,
where she might hit the mark once in a while. The Gypsy sighs with relief and says that 79
Technology Management there is no fatal accident in store for us today. According to Pohl's reasoning, this should
provide the most useful forecast because it has the least accuracy. It's obvious, though,
that this fortune is as useless as the one where she is completely accurate. Leaving the
Gypsy's tea-room is not something we would want to do.
If we view accuracy as a continuum, it may be that the antonym of accuracy is randomness
(instead of inaccuracy). In this case, Pohl's theory would suggest that random forecasts
are more useful than accurate forecasts. In demand forecasting, the degree of over- and
under-utilization of our resources is proportional to the difference between the observed
and predicted values. Random forecasts are entirely unacceptable for this type of application.
Pohl's thought experiment is very important because it forces us to look at the theoretical
foundations of forecasting. First, Pohl's experiment may not be valid because it violates
a basic assumption of forecasting (i.e., we cannot predict the future with one hundred
percent accuracy). Second, the usefulness of a forecast does not always seem to be
related to its accuracy. Both extremes (completely accurate and completely inaccurate)
can produce useful or useless forecasts.
The usefulness of a forecast is not something that lends itself readily to quantification
along any specific dimension (such as accuracy). It involves complex relationships between
many things, including the type of information being forecast, our confidence in the
accuracy of the forecast, the magnitude of our dissatisfaction with the forecast, and the
versatility of ways that we can adapt to or modify the forecast. In other words, the
usefulness of a forecast is an application sensitive construct. Each forecasting situation
must be evaluated individually regarding its usefulness.
One of the first rules of doing research is to consider how the results will be used. It is
important to consider who the readers of the final report will be during the initial planning
stages of a project. It is wasteful to expend resources on research that has little or no
use. The same rule applies to forecasting. We must strive to develop forecasts that are
of maximum usefulness to planners. This means that each situation must be evaluated
individually as to the methodology and type of forecasts that are most appropriate to the
particular application.
3.3.4 Do Forecasts Create the Future
A paradox exists in preparing a forecast. If a forecast results in an adaptive change, then
the accuracy of the forecast might be modified by that change. Suppose the forecast is
that our business will experience a ten percent drop in sales next month. We adapt by
increasing our promotion effort to compensate for the predicted loss. This action, in turn,
could affect our sales, thus changing the accuracy of the original forecast.
Many futurists (de Jouvenel, Dublin, Pohl, and others) have expressed the idea that the
way we contemplate the future is an expression of our desire to create that future.
Physicist Dennis Gabor, discoverer of holography, claimed that the future is invented, not
predicted. The implication is that the future is an expression of our present thoughts. The
idea that we create our own reality is not a new concept. It is easy to imagine how
thoughts might translate into actions that affect the future.
Biblical records speak of faith as the force that could move mountains. Recent research
in quantum mechanics suggests that this may be more than just a philosophical concept.
At a quantum level, matter itself might simply be a manifestation of thought. Electrons
and other subatomic particles seem to exist only when physicists are looking for them,
otherwise, they exist only as energy.
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An incredible discovery was made at the University of Paris in 1982. A team of researchers Technology Forecasting
lead by Alain Aspect found that under certain conditions, electrons could instantaneously
communicate with each other across long distances. The results of this experiment have
been confirmed by many other researchers, although the implications are exceedingly
hard to accept. Three explanations are possible: 1) information can be transferred at
speeds exceeding the speed of light, 2) the passage of time is an illusion, 3) the distance
between the electrons is an illusion. All three explanations rock our perception of reality.
David Bohm has explained Aspect's experiment by hypothesizing a holographic universe
in which reality is essentially a projection of some deeper dimension that we are not able
to comprehend. Instantaneous communication is possible because the distance between
the particles is an illusion. Neurophysiologist Karl Pribram has also theorized about the
holographic nature of reality. His theory is based on a study of the way that the brain
recalls memory patterns, but the implications are the same. Reality is a phantasm.
If reality is an illusion, then the future is also an illusion. The phenomena of being able to
see the future is known as precognition. Most people believe that (to some degree) they
can predict the future. Fortune-tellers, however, believe they can view the future. There
is a major difference. We predict the future based on knowledge, intuition and logic.
Precognitive persons claim to "see" the future. Knowledge and logic are not involved.
Throughout history, there have been many reports of gifted psychics with precognitive
powers. Through some unknown mechanism, these people are able predict things that
will happen in the future. If we admit that even a single person in history has possessed
this capability, then we must accept the fact that our concept of reality needs dramatic
alteration. Time itself may not exist as we currently perceive it. Forecasting may be a
method of creating illusions.
Forecasting can, and often does, contribute to the creation of the future, but it is clear
that other factors are also operating. A holographic theory would stress the
interconnectedness of all elements in the system. At some level, everything contributes
to the creation of the future. The degree to which a forecast can shape the future (or our
perception of the future) has yet to be determined experimentally and experientially.
Sometimes forecasts become part of a creative process, and sometimes they don't.
When two people make mutually exclusive forecasts, both of them cannot be true. At
least one forecast is wrong. Does one person's forecast create the future, and the other
does not? The mechanisms involved in the construction of the future are not well
understood on an individual or social level.
Modis believes that the media provides the mechanism by which social forecasts take on
a creative context. In this theory, extensive media coverage acts as a resonating cavity
for public opinion, and creates a "cultural epidemic" that modifies social behavior.
Dublin points out that the "future has become so integral to the fabric of modern
consciousness that few people feel compelled to question it...". Because of the power of
a prediction to affect the future, he goes on to state that prophesy is usually a self-
interest quest for power.
3.3.5 The Ethics of Forecasting
Are predictions of the future a form of propaganda, designed to evoke a particular set of
behaviors? Dublin states that the desire for control is implicit in all forecasts. Decisions
made today are based on forecasts, which may or may not come to pass. The forecast
is a way to control today's decisions.
81
Technology Management The purpose of forecasting is to control the present. In fact, one of the assumptions of
forecasting is that the forecasts will be used by policy-makers to make decisions. It is
therefore important to discuss the ethics of forecasting. Since forecasts can and often
do take on a creative role, what right do we have to make forecasts that involve other
peoples futures?
Nearly everyone would agree that we have the right to create our own future. Goal
setting is a form of personal forecasting. It is one way to organize and invent our personal
future. Each person has the right to create their own future. On the other hand, a social
forecast might alter the course of an entire society. Such power can only be accompanied
by equivalent responsibility.
There are no clear rules involving the ethics of forecasting. In Future Shock, Toffler discussed
the importance of value impact forecasting, the idea that social forecasting must involve
physical, cultural and societal values. It is doubtful that forecasters can leave their own
personal biases out of the forecasting process. Even the most mathematically rigorous
techniques involve judgmental inputs that can dramatically alter the forecast.
Many futurists have pointed out our obligation to create socially desirable futures.
Unfortunately, a socially desirable future for one person might be another person's
nightmare. For example, modern ecological theory says that we should think of our
planet in terms of sustainable futures. The finite supply of natural resources forces us to
reconsider the desirability of unlimited growth. An optimistic forecast is that we achieve
and maintain an ecologically balanced future. That same forecast, the idea of zero growth,
is a catastrophic nightmare for the corporate and financial institutions of the free world.
Our Keynesian system of profit depends on continual growth for the well-being of
individuals, groups, and institutions.
Desirable futures is a subjective concept. It can only be understood relative to other
information. The ethics of forecasting certainly involves the obligation to create desirable
futures for the person(s) that might be affected by the forecast. If a goal of forecasting
is to create desirable futures, then the forecaster must ask the ethical question of "desirable
for whom?".
To embrace the idea of liberty is to recognize that each person has the right to create
their own future. Forecasters can promote libertarian beliefs by empowering people that
might be affected by the forecast. Involving these people in the forecasting process,
gives them the power to become co-creators in their futures.

3.4 TREND ANALYSIS

These methods examine trends and cycles in historical data, and then use mathematical
techniques to extrapolate to the future. The assumption of all these techniques is that the
forces responsible for creating the past, will continue to operate in the future. This is
often a valid assumption when forecasting short term horizons, but it falls short when
creating medium and long term forecasts. The further out we attempt to forecast, the
less certain we become of the forecast.
The stability of the environment is the key factor in determining whether trend extrapolation
is an appropriate forecasting model. The concept of "developmental inertia" embodies
the idea that some items are more easily changed than others. Clothing styles is an
example of an area that contains little inertia. It is difficult to produce reliable mathematical
forecasts for clothing. Energy consumption, on the other hand, contains substantial inertia
82 and mathematical techniques work well. The developmental inertia of new industries or
new technology cannot be determined because there is not yet a history of data to draw Technology Forecasting
from.
There are many mathematical models for forecasting trends and cycles. Choosing an
appropriate model for a particular forecasting application depends on the historical data.
The study of the historical data is called exploratory data analysis. Its purpose is to
identify the trends and cycles in the data so that appropriate model can be chosen.
The most common mathematical models involve various forms of weighted smoothing
methods. Another type of model is known as decomposition. This technique
mathematically separates the historical data into trend, seasonal and random components.
A process known as a "turning point analysis" is used to produce forecasts. ARIMA
models such as adaptive filtering and Box-Jenkins analysis constitute a third class of
mathematical model, while simple linear regression and curve fitting is a fourth.
The common feature of these mathematical models is that historical data is the only
criteria for producing a forecast. One might think then, that if two people use the same
model on the same data that the forecasts will also be the same, but this is not necessarily
the case. Mathematical models involve smoothing constants, coefficients and other
parameters that must decided by the forecaster. To a large degree, the choice of these
parameters determines the forecast.
It is vogue today to diminish the value of mathematical extrapolation. Makridakis (one of
the gurus of quantitative forecasting) correctly points out that judgmental forecasting is
superior to mathematical models, however, there are many forecasting applications where
computer generated forecasts are more feasible. For example, large manufacturing
companies often forecast inventory levels for thousands of items each month. It would
simply not be feasible to use judgmental forecasting in this kind of application. Another
important technology forecasting technique is trend projection.
3.4.1 Trend Projections
This is based on the assumption that the future grows out of the past. The past data,
accordingly, is projected into the future. The leading indicators or turning points in
technological innovations are spotted from the information collected, on national, industrial,
competitive indices, market trends etc. Based on these important changes in technological
activity over a period of time and on the information collected, the future trends are
predicted. For example, in respect of power generation equipment, improvements in
power to weight ratio, power to loss ratio or conversion efficiency over the years are
plotted against time and then the past trend is projected into the future. However, as
experts point out, mere trend projections do not always put the researcher on track
unless he combines such projections with other intuitive and econometric approaches.

3.5 ANALOGY TECHNIQUE

Analogy is uaually used in technical analysis. The dictionary meaning of analogy is - a
similarity between like features of two things, on which a comparison may be based: the
analogy between the heart and a pump. Analogy plays a significant role in problem
solving, decision making, perception, memory, creativity, emotion, explanation and
communication. It lies behind basic tasks such as the identification of places, objects and
people, for example, in face perception and facial recognition systems. Analogy is both
the cognitive process of transferring information from a particular subject (the analogue
or source) to another particular subject (the target), and a linguistic expression
corresponding to such a process. In a narrower sense, analogy is an inference or an 83
Technology Management argument from one particular to another particular, as opposed to deduction, induction,
and abduction, where at least one of the premises or the conclusion is general. The word
analogy can also refer to the relation between the source and the target themselves,
which is often, though not necessarily, a similarity, as in the biological notion of analogy.
It has been argued that analogy is "the core of cognition". Specific analogical language
comprises exemplification, comparisons, metaphors, similes, allegories, and parables, but
not metonymy. Phrases like and so on, and the like, as if, and the very word like also rely
on an analogical understanding by the receiver of a message including them. Analogy is
important not only in ordinary language and common sense, where proverbs and idioms
give many examples of its application, but also in science, philosophy and the humanities.
The concepts of association, comparison, correspondence, mathematical and morphological
homology, homomorphism, iconicity, isomorphism, metaphor, resemblance, and similarity
are closely related to analogy. In cognitive linguistics, the notion of conceptual metaphor
may be equivalent to that of analogy.
This method utilizes analogies between the phenomenon to be forecast and some historical
event or popular physical or biological process. To the extent that the analogy is valid (all
analogies become invalid at a certain level), the initial event or process can be used to
wake a prediction about future developments of a technology
(see Figure 3.1). The technological forecaster uses the analogy method consciously and
deliberately, examining the model situation and the situation to be forecast in considerable
detail to determine the extent to which the analogy is valid. An example of this approach
is delineated in the book, The Railroads and the Space Program: An Exploration in Historical
Analogy. The forecasters used 19th century railroad development as an analogous system
to the U.S. space program. The utilization of growth curves is used to predict the advance
of some technologies (analogous to biological or physical processes - the "'S" curve, see
Figure 3.1.

Figure 3.1: Analogy Application

84
 Technology Forecasting
3.6 DELPHI METHOD
Forecasting complex systems often involves seeking expert opinions from more than
one person. Each is an expert in his own discipline, and it is through the synthesis of
these opinions that a final forecast is obtained. One method of arriving at a consensus
forecast would be to put all the experts in a room and let them "argue it out". This method
falls short because the situation is often controlled by those individuals that have the best
group interaction and persuasion skills.
A better method is known as the Delphi technique. This method seeks to rectify the
problems of face-to-face confrontation in the group, so the responses and respondents
remain anonymous. The classical technique proceeds in well-defined sequence. In the
first round, the participants are asked to write their predictions. Their responses are
collated and a copy is given to each of the participants. The participants are asked to
comment on extreme views and to defend or modify their original opinion based on what
the other participants have written. Again, the answers are collated and fed back to the
participants. In the final round, participants are asked to reassess their original opinion in
view of those presented by other participants. The Delphi method generally produces a
rapid narrowing of opinions. It provides more accurate forecasts than group discussions.
Furthermore, a face-to-face discussion following the application of the Delphi method
generally degrades accuracy.
Box 3.4: The Delphi Method at BHEL
BHEL, the largest electrical equipment company in India, has used the Delphi method to
explore the future direction of power development, especially in the areas of electric energy
and electric transportation. The company manufactures products and systems for the energy
(thermal, nuclear and hydro) industry and transportation sectors, drawing inputs and
expertise from an amazing variety of engineering disciplines (metallurgy, metrology,
aerodynamics, electronics, solar technology etc). The Delphi process involved 286 company
members from these sources.
In the first step or round, an open ended questionnaire was sent to prospective respondents.
The primary objective of this round was to generate as many ideas as possible regarding
major technological breakthroughs that could possibly be developed in the next three or
four decades. Participants also estimated when they expected the technological
breakthroughs to occur.
In the second round, the list of technological innovations/breakthroughs and basic statistical
data about the estimated timings of the breakthroughs was fed back to participants. The
participants were then asked to reconsider their earlier timing estimates and give fresh ones
in the light of additional information supplied to them. They were asked to offer explanations
if their estimates were outside the general range of timings provided by the participants in
the first round and supply a priority ranking for each technological development in terms of
the urgency of each requirement. The replies thus obtained led to an emerging opinion
towards consensus on important issues.
In the third round the participants were given the collated comments and the new statistical
data about estimated timings that emerged in round two. In the third round, participants
were expected to give their final verdict and indicate reasons for their final forecasts.
The final outcomes showed technological breakthroughs in computerised power stations
and wind power in the 1990 and 1995 range and ocean tidal power and magnetic levitation
and propulsion during 1995 and 2000. The Delphi process helped in identification of 19
likely forms of energy sources and refined guesstimates regarding when such new energy
sources would appear.
85
Technology Management The Delphi technique is a forecasting aid based on a consensus of a panel of experts.
The experts refine their opinions, step by step, until they reach a consensus. Because the
technique is heavily dependent on opinions, it obviously is not foolproof. But the consensus
arrived at tends to be much more accurate than a single experts opinion. The Delphi
method has been used by a variety of organisations including TRW, IBM, AT&T, Corning
Glass Works, Goodyear and ICL in Britain. The Delphi technique was used in India in
Bharat Heavy Electricals Ltd (BHEL) for technology forecasting for power generation
equipment, as reported by Garde and Patel. (See Box 3.4 above)

The Delphi method is a systematic, interactive forecasting method which relies on a

panel of independent experts. The carefully selected experts answer questionnaires in
two or more rounds. After each round, a facilitator provides an anonymous summary of
the experts' forecasts from the previous round as well as the reasons they provided for
their judgments. Thus, experts are encouraged to revise their earlier answers in light of
the replies of other members of their panel. It is believed that during this process the
range of the answers will decrease and the group will converge towards the "correct"
answer. Finally, the process is stopped after a pre-defined stop criterion (e.g. number of
rounds, achievement of consensus, stability of results) and the mean or median scores of
the final rounds determine the results.
Delphi is based on the principle that forecasts from a structured group of experts are
more accurate than those from unstructured groups or individuals. The technique can be
adapted for use in face-to-face meetings, and is then called mini-Delphi or Estimate-
Talk-Estimate (ETE). Delphi has been widely used for business forecasting and has
certain advantages over another structured forecasting approach, prediction markets.
Use in Forecasting
First applications of the Delphi method were in the field of science and technology
forecasting. The objective of the method was to combine expert opinions on likelihood
and expected development time, of the particular technology, in a single indicator. One
of the first such reports, prepared in 1964 by Gordon and Helmer, assessed the direction
of long-term trends in science and technology development, covering such topics as
scientific breakthroughs, population control, automation, space progress, war prevention
and weapon systems. Other forecasts of technology were dealing with vehicle-highway
systems, industrial robots, intelligent internet, broadband connections, and technology
in education.

Later the Delphi method was applied in other areas, especially those related to public
policy issues, such as economic trends, health and education. It was also applied
successfully and with high accuracy in business forecasting. For example, in one case
reported by Basu and Schroeder (1977), the Delphi method predicted the sales of a new
product during the first two years with inaccuracy of 3-4% compared with actual sales.
Quantitative methods produced errors of 10-15%, and traditional unstructured forecast
methods had errors of about 20%.

Acceptance
Overall the track record of the Delphi method is mixed. There have been many cases
when the method produced poor results. Still, some authors attribute this to poor application
of the method and not to the weaknesses of the method itself. It must also be realized
that in areas such as science and technology forecasting the degree of uncertainty is so
86
great that exact and always correct predictions are impossible, so a high degree of error Technology Forecasting

is to be expected.

Another particular weakness of the Delphi method is that future developments are not
always predicted correctly by consensus of experts. Firstly, the issue of ignorance is
important. If panelists are misinformed about a topic, the use of Delphi may add only
confidence to their ignorance. Secondly, sometimes unconventional thinking of amateur
outsiders may be superior to expert thinking.

One of the initial problems of the method was its inability to make complex forecasts
with multiple factors. Potential future outcomes were usually considered as if they had
no effect on each other. Later on, several extensions to the Delphi method were developed
to address this problem, such as cross impact analysis, that takes into consideration the
possibility that the occurrence of one event may change probabilities of other events
covered in the survey. Still the Delphi method can be used most successfully in forecasting
single scalar indicators.

To improve on the intuitive and consensus methods, the Rand Corporation developed the
"Delphi Procedure," in which a panel of experts (like the consensus method) arrive at a
consensus but, eliminating the regulating of committee bias by employing a series of
questionnaires. The first phase asks for the panels' forecasts. The replies are compounded.
The second phase requests comments on the Phase I compound forecast. Phase III is a
derivative of Phase I based on the results of Phase II. A typical process might include
five or six phases. A forecast convergence is the goal of this multi-phase process.
Figure 3.2 shows the convergence of a hypothetical date for a certain even based on a
multi-phase Delphi process:

Figure 3.2: Delphi Forecasting Convergence Example

(A, B, C, E, F, G, and H Represent Panel Members). Notice that as the
Panel of Experts Forecast Phase-byphase that the Data Converges 87
Technology Management Delphi Applications not Aiming at Consensus
Traditionally the Delphi method has aimed at a consensus of the most probable future by
iteration. The Policy Delphi launched by Murray Turoff instead is a decision support
method aiming at structuring and discussing the diverse views of the preferred future.
The Argument Delphi developed by Osmo Kuusi focuses on ongoing discussion and
finding relevant arguments rather than focusing on the output. The Disaggregative Policy
Delphi developed by Petri Tapio uses cluster analysis as a systematic tool to construct
various scenarios of the future in the latest Delphi round. The respondent's view on the
probable and the preferable future are dealt with as separate cases.
Delphi vs. Prediction Markets
As can be seen from the Methodology Tree of Forecasting, Delphi has characteristics
similar to prediction markets as both are structured approaches that aggregate diverse
opinions from groups. Yet, there are differences that may be decisive for their relative
applicability for different problems.
Some advantages of prediction markets derive from the possibility to provide incentives
for participation.
1. They can motivate people to participate over a long period of time and to reveal
their true beliefs.
2. They aggregate information automatically and instantly incorporate new information
in the forecast.
3. Participants do not have to be selected and recruited manually by a facilitator.
They themselves decide whether to participate if they think their private information
is not yet incorporated in the forecast.
Delphi seems to have these advantages over prediction markets with potentially quicker
forecasts if experts are readily available.

3.7 SOFT SYSTEM METHODLOGY

Soft systems methodology was developed in England by academics at the University of
Lancaster Systems Department through a ten year action research programme (SSM).
It is an approach to organisational process modeling (business process modeling) and it
can be used both for general problem solving and in the management of change.
The methodology was developed from earlier systems engineering approaches, primarily
by Peter Checkland and colleagues such as Brian Wilson. The primary use of SSM is in
the analysis of complex situations where there are divergent views about the definition
of the problem - "soft problems" (e.g. How to improve health services delivery; How to
manage disaster planning; When should mentally disordered offenders be diverted from
custody? What to do about homelessness amongst young people?).
In such situations even the actual problem to be addressed may not be easy to agree
upon. To intervene in such situations the soft systems approach uses the notion of a
"system" as an interrogative device that will enable debate amongst concerned parties.
In its 'classic' form the methodology consists of seven steps, with initial appreciation of
the problem situation leading to the modelling of several human activity systems that
might be thought relevant to the problem situation. By discussions and exploration of
these the decision makers will arrive at accommodations over what kind of changes may
88 be systemically desirable and feasible in the situation. Later explanations of the ideas
give a more sophisticated view of this systemic method, and do give more attention to Technology Forecasting
locating the methodology in respect to its philosophical underpinnings. It is though the
earlier classical view which is most widely used in practice.
There are several hundred documented examples of the successful use of SSM in many
different fields, ranging from ecology, to business and military logistics. It has been adopted
by many organisations and incorporated into other approaches: in the 1990s for example
it was the recommended planning tool for the UK government's SSADM system
development methodology.
The general applicability of the approach has led to some criticisms that it is functionalist,
non-emancipatory or supports the status quo and existing power structures; this is a
claim that users would deny, arguing that the methodology itself can be none of these, it
is the user of the methodology that may choose to employ it in such a way.

Check Your Progress

Write a study note on the need and methods of technology forecasting.

3.8 LET US SUM UP

Technological forecasting is aimed at predicting future technological capabilities, attributes,
and parameters. It is not an attempt to predict how things will be done. Nor is technological
forecasting oriented toward profitability. That is, a technological capability or attribute
can be forecast to be available at some time in the future, although society may not
necessarily want or need the capability.
The major techniques for technological forecasting may be categorized under two general
headings: methods based on numeric data and judgmental methods. In the main, numeric
data-based forecasting extrapolates history by generating statistical fits to historical data.
A few numeric methods deal with complex interdependencies. Judgmental forecasting
may also be based on projections of the past, but information sources in such models rely
on the subjective judgments of experts. Again, we emphasize that technological forecasting
is most appropriately applied to capabilities, not to the specific characteristics of specific
devices.
Delphi is a data-gathering tool to aid in the anonymous survey of expert judgments,
obtained in a series of rounds, ultimately for forecasting purposes. This can have (but is
not limited to) the following applications: 1. New product forecasts, 2. Personnel selection,
3. Estimating the effect of a change in a marketing program, 4. Predicting outcomes in
conflict situations. Delphi is designed only for use with questions that yield either rankings
or quantitative estimates.
Trend analysis methods examine trends and cycles in historical data, and then use
mathematical techniques to extrapolate to the future. The assumption of all these
techniques is that the forces responsible for creating the past, will continue to operate in
the future. This is often a valid assumption when forecasting short term horizons, but it
falls short when creating medium and long term forecasts.
Analogy is uaually used in technical analysis. The dictionary meaning of analogy is - a
similarity between like features of two things, on which a comparison may be based: the
analogy between the heart and a pump. Analogy plays a significant role in problem solving,
decision making, perception, memory, creativity, emotion, explanation and communication. 89
Technology Management Soft systems methodology was developed in England. The primary use of SSM is in the
analysis of complex situations where there are divergent views about the definition of
the problem - "soft problems" (e.g. How to improve health services delivery; How to
manage disaster planning; When should mentally disordered offenders be diverted from
custody? What to do about homelessness amongst young people?).

3.9 KEY TERMS

Forecasting: Forecasting involves predicting, projecting or estimating future events or
conditions (generally beyond the organisations control) in an organisations environment.
Extrapolation: The projection of some tendency from the past or present into the future.
Scenario: A written description of a possible future.
Delphi Technique: A structured approach to gaining the judgements of a number of
experts on a specific issue relating to the future.
Simulation: A representation of a real system.
Judgmental Forecasting: A type of forecasting that relies mainly on individual judgements
or committee agreements regarding future conditions.
Jury of Expert Opinion: A way of forecasting in which experts in an organisation hold
a meeting and estimate, as a group, a forecast for a particular item.
Time Series Methods: Methods that use historical data to develop forecasts of the
future.
Technological Forecasting: The predication of what future technologies are likely to
emerge and when they are likely to be economically feasible.
Virtual Team: Any task-focussed group that meets without all members necessarily
being in the same room or even working at the same time.
Innovation: It is a new idea applied to initiating or improving a process, product or
service.
Reengineering: The radical redesign of all aspects of a business to achieve major gains
in cost, service or time.

3.10 TEST QUESTIONS

1. Discuss the applications of Delphi in technology forecasting and quantitative
estimates.
2. Why there arises the need for technology forecasting?
3. Analyze the methodology and methods for technology forecasting.
4. Discuss the use of trends analysis in technology forecasting.
5. Discuss the concept of Delphi.
6. What do you understand by soft system methodology?

90
 Technology Forecasting
3.11 SUGGESTED READINGS
Gerard H. Gaynor, Handbook of Technology Management, Mc-GrawHill.
Noori H & Radford R.W., Reading and cases in the Management of New Technology,
Englewood Cliffs, N.J. Prentice Hall, 1990.
Bowonder B. and Miyake T., Technological forecasting, Methodologies and Case
Studies.
www.foster-miller.com

91
Technology Management
LESSON

4
MATHEMATICAL MODELS FOR
TECHNOLOGY FORECASTING
CONTENTS
4.0 Aims and Objectives
4.1 Introduction
4.2 Mathematical Models
4.3 Simulation
4.4 System Dynamics
4.5 Let Us Sum Up
4.6 Key Terms
4.7 Test Questions
4.8 Suggested Readings

4.0 AIMS AND OBJECTIVES

After studying this lesson, you will be able to understand:
1. The use of mathematical models in technology forecasting.
2. The importance of the concept of simulation in technology forecasting.
3. The role played by system dynamics in technology forecasting.

4.1 INTRODUCTION
In this paper we propose a methodology to model innovation processes. The modelling is
based upon interviews with a number of experienced managers. The knowledge of these
managers is codified using cognitive mapping techniques. Subsequently these cognitive
maps are translated into causal diagram and ultimately in a computer model. To keep the
essentials of the non-linear behaviour of the innovation process intact during the modelling
process of simplification, special attention is given to recognize the various non-linear
mechanisms and driving forces. After each step, feedback is asked from the interviewed
managers. Furthermore, the model is validated using some typical cases. Up until now
the methodology is applied in cooperation with two companies, one in the steel industry
and one in the food industry. Both companies have decided to continue the exercise and
after further elaboration use them as support tools.
The most common mathematical models involve various forms of weighted smoothing
methods. Another type of model is known as decomposition. This technique mathematically
separates the historical data into trend, seasonal and random components. A process
known as a "turning point analysis" is used to produce forecasts. ARIMA models such as
adaptive filtering and Box-Jenkins analysis constitute a third class of mathematical model,
92 while simple linear regression and curve fitting is a fourth.
 Mathematical Models for
4.2 MATHEMATICAL MODELS Technology Forecasting

4.2.1 Statistical Model

A statistical model is based on a series of observations on the phenomenon, and it delineates
the pattern of the association between the various factors or variables of the phenomenon
that are of interest. Descriptive models that are used in forecasting are often quantitative, but
qualitative ones are used as well. Figure 4.1 indicates the method of prediction on the basis of
a descriptive model. Many events, such as descriptive phenomenon, are single occasion
events and as such they are a difficult phenomenon to model. Therefore, the application of a
statistical model necessitates a thorough understanding - lengthening the forecasting process.

E m p irica l Th eo re tical

R e se arch

P re -a ction
M athe m a tica l
A ction
M od el
R e -A ctio n

Fo re ca st

R e alm R e alm

Figure 4.1: Application of a Statistical Model

4.2.2 Structural Modeling
Structural modeling is an attempt to develop a mathematical or analytical model of a
technology-generation process. As with mathematical model of any process the purpose
for model construction is to identify certain key elements, identify the functional aspects
of those elements, and express these functional aspects symbolically or mathematically.
Structural models tend to be abstract and reductionistic in their approach in removing
what are denied to be non-essential functions (see Figure 4.2)

S cie ntific E n gine ering

R e se arch Fu nction s

U n iversa l Techn o log ies

K n ow led ge D iscove ry (A p plie d
S o urce S cie nce )

S cie ntists E n gine ers

Figure 4.2: Structural Model of the Technology-generation Process

(each block conceals a sub-model) 93
Technology Management 4.2.3 TRIZ Technology Forecasting
Altschuller found that any system is evolving in a biological pattern, meaning that it will
go through four main stages also known as: infancy, growth, maturity, and decline. These
stages are plotted on the biological "S-Curve" on Figures 9a and 9b.

O ld
M aturity Age
S tag e

R a pid
G ro w th
Fu nction al Th e ne w te chn ical
P e rfo rm an ce syste m is inven te d S tag e Th e pe rfo rm an ce
In de x in d ex o f th e syste m
a pp roa che s a lim it

In fa ncy
S tag e M ajor pro blem s
a ssociate d w ith the
n ew techn ica l system
a re o verco m e

TIM E

Figure 4.3: Functional Performance Index

Three main descriptors are used to assess the life cycle stage (or technological maturity)
of a technological system on its S-curve. They are:
1. the number of patents per time period
2. the level of innovation per time period
3. technical performance per time period and
Each descriptor has a characteristics profile or shape as shown in Figure 4.4

S -C u rve L evel o f In ven tio ns

TIM E TIM E

N u m b e r of In ve n tio ns

TIM E

94 Figure 4.4: Life Cycle Stage (or Technological Maturity)

The company can collect data to construct each of the descriptor curves. The shapes of Mathematical Models for
Technology Forecasting
each of the descriptor curves are compared with the shapes of the characteristic curves.
A composite analysis of the three curves provides a data-driven assessment of the maturity
of the company's technological system.
Other descriptors are sometime used to refine the maturity of a system such as cost
reduction-related inventions. Darrell Mann defined "cost reduction-related inventions"
as inventions that relate to making the product cheaper - such as improvements to
manufacturing technology or method of assembly.
4.2.4 Numeric Data-Based Technological Forecasting Techniques
Trend Extrapolation
To extrapolate is to infer the future from the past. If there has been a steady stream of
technological change and improvement, it is reasonable to assume that the stream will
continue to now. We can distinguish four approaches to the use of trend extrapolation.
(a) Statistical Curve Fitting: This method is applicable to forecasting functional
capabilities. Statistical procedures fit the past data to one or more mathematical
functions such as linear, logarithmic, Fourier, or exponential. The best fit is selected
by statistical test and then a forecast is extrapolated from this mathematical relationship.
For example, we can forecast the fastest qualification (pole position) speeds at the
Indianapolis 500 Mile Race by plotting pole position speeds against time measured
in years (see Figure 4.5). Beginning with the post-World War I races, the pole
position speeds of Indy race cars have exponentially increased, Two technological
innovations are quite easily seen in the data. One is the rear-engine car. The first
such car appeared in 1961. Qualifying speeds were about 150 mph. In 1964 a rear-
engine car won the pole position at slightly less than 159 mph. The growth rate of
qualifying speed is significantly higher with the rear-engine technology, so different
exponential functions were fitted to front- and rear-engined cars.

2 20
R e ar
2 00 e ng in e

1 80
S pe ed , m p h

1 60

1 40
Fro n t
1 20 e ng in e
1 00
80
1 90 0 1 92 0 1 94 0 1 96 0 1 98 0 2 00 0
Ye ar

Figure 4.5: An Example of Statistical Curve Fitting

The second easily discernible technological innovation occurred in the early 1970s.
It was the use of sophisticated aerodynamic devices (wings at the rear of the car)
to create downforce on the cars, allowing them much higher cornering speeds-
from 170 mph in 1970, to 179 mph in 1971, to 196 mph in 1973 (with the addition of
wings at the front of the car).
(b) Limit Analysis: Ultimately, all growth is limited, and there is an absolute limit to
progress, either recognized or unrecogized. Sooner or later, projections must reflect 95
Technology Management the fact that improvements may get close to this limit but cannot exceed it. For
instance, a trend of increasing energy conversion efficiency cannot eventually exceed
100 percent. As another example, the lowest temperature achieved in the laboratory
is presented in Figure 4.6. The trend of lower and lower temperatures is limited, of
course, by absolute zero. (It is interesting to note the rapid improvement in the
ability to produce low temperatures that occurred around 1900.)

1 00 0

L ow est Te m pe rature A ch ie ve d in th e L ab orato ry (K )

1 00

10

1.

.1

.0 1

.0 01

.0 00 1

.0 00 01
1 70 0 1 80 0 1 90 0 2 00 0
Ye ar

Figure 4.6: An Example of Limit Analysis

If the present level of technology being forecast is far from its theoretical extreme,
extrapolation may not be unreasonable. If, however, a current technology is
approaching its limit, and if this is not recognized, projections of past improvements
may seriously overestimate future accomplishments.
(c) Trend Correlation: At times, one technology is a precursor to another. This is
frequently the case when advances made in the precursor technology can be adopted
by the follower technology. When such relationships exist, knowledge of changes
in the precursor technology can be used to predict the course of the follower
technology, as far in the future as the lag time between the two. Further, extrapolation
of the precursor allows a forecast of the follower to be extended beyond the lag
time. Figure 4.7 shows an example of a trend correlation, which compares the
trends of combat and transport aircraft speeds. Another example of a trend
correlation forecast is predicting the size and power of future computers, based on
advances in microelectronic technology.
(d) Multivariate Trend Correlation: Occasionally, a follower technology is dependent
on several precursor technologies rather than on a single precursor. In such cases,
the follower is usually a composite or aggregate of several precursors. Fixed
combinations of the precursors may act to produce change in the follower, but
more often the combinations are not fixed and the precursor inputs vary in both
combination and strength. For example, improvements in aircraft speed may come
from improvements in engines, materials, controls, fuels, aerodynamics, and from
various combinations of such factors. An example of a multiple trend correlation
forecast using total passenger miles, total plane miles, and average seating capacity
is shown in Figure 4.8.
96
 Mathematical Models for
Technology Forecasting

S pe ed o f C o m b a t a nd Tran sp ort A ircraft (m ph )

3 00 0
M ach 3
2 00 0
M ach 2 T B o eing S S T
C o m b a t a ircraft
B F
1 00 0
B

FB
F T T
T
F T
T T
B T
BF T
FBT T Tra nsp ort aircraft
TT
F
T
T

1 00
T

1 93 0 1 94 0 1 95 0 1 96 0 1 97 0 1 98 0 1 99 0
Ye ar

Figure 4.7: An Example of Trend Correlation

X 4 80
X
X

X
1 05
To tal D o m e stic A irlin e P asse n ge r M iles (m illion s)

Tota l pa ss. M ile s P la ne M iles (m illion s)

X X
X
X
1 04 1 00 0
X

Tota l plane m ile s X 5 00

X
X
2 00

1 03 1 00

50
A ve . S eatin g cap acity
20

1 02
1 93 0 1 94 0 1 96 0 1 98 0 2 00 0
Ye ar

Figure 4.8: An Example of Multivariate Correlation

Extrapolation of statistically determined trends permits an objective approach to forecasting.
It also permits analysis and critique by people other than the forecaster. This approach,
however, still has serious limitations and pitfalls. Any errors or incorrect choices made in
selecting the proper historical data will be reflected in the forecast. Such errors lower
the utility of the forecast, and may completely negate its value. The forecasts given by
this methodology are not sensitive to changes in the conditions that have produced the
97
Technology Management historical data, changes that may significantly alter the trend. Even when it is known that
one or more possibly important conditions are going to change, technological advances
cannot be predicted from the extrapolation. Statistical trend extrapolation yields a "good"
forecast with high frequency, but when the environment changes, it can be quite wrong.
Trend Extrapolation, Qualitative Approaches
At times, standard statistical procedures do not result in neatly fitting trends that the
forecaster can extrapolate with comfort. In such cases, the forecaster may "adjust" the
statistical results by applying judgment, or he or she may ignore the statistics entirely and
extrapolate a trend wholly on the basis of judgment. Forecasts generated in this way are
less precise than statistically based forecasts, but not necessarily less accurate.
One example of this kind of qualitative trend extrapolation is the prediction of aircraft
complexity. The attempts to quantify this trend have not been successful. But the percent
of movable or adjustable parts in an aircraft has been extrapolated from the frequency
that such elements were introduced in the past, and these forecasts have been reasonably
accurate. Specific technical change cannot be predicted this way, but the degree of
change can be. This provides useful inputs to planning by indicating the probable trend of
past behaviors.
Growth Curves
The growth pattern of a technological capability is similar to the growth of biological
life. Technologies go through an invention phase, an introduction and innovation phase,
a diffusion and growth phase, and a maturity phase, In doing so, their growth is
similar to the S-shaped growth of biological life. Technological forecasting helps to
estimate the timing of these phases. This growth curve forecasting method is
particularly useful in determining the upper limit of performance for a specific
technology. An example of growth curve analysis is shown in Figure 4.9, which
depicts the number of telephones per 1000 population as a function of time. The
year in which the upper limit of diffusion (one phone per person over 15-years old,
or about 700 phones per 1000 population) is reached can be extrapolated from the
S-curve, and it occurs between 1990 and 2000.

1 00 0 A ssum ed L im it = 69 6.9
N u m b er of Te lep h on es p er 1000 p erso ns

1 00

10

0 .1
1 88 0 1 90 0 1 92 0 1 94 0 1 96 0 1 98 0 2 00 0
Ye ar

Figure 4.9: An Example of a Growth Curve

98
Several mathematical models can be used to generate growth curves. The choice of Mathematical Models for
Technology Forecasting
model is subjective, depending largely on the analyst's judgment about which of the
functional forms most closely approximates the underlying reality of the technical growth
under consideration. When using growth curves, the forecaster must be sure that the
data are self-consistent-that is, that all data come from the same data set or population.

The forecaster must also remember not to confuse accuracy with precision. It is possible
to develop precise capability/time estimates, but their accuracy is illusory. We might read
Figure 5 as "697 phones per 1000 population as of 1997," but "about 700 between 1990
and 2000" is a better reflection of the scatter in the data underlying the curve. Finally, the
forecaster must remember that growth curves reflect a single technological approach, a
given way of achieving a capability. Extrapolation cannot go beyond the saturation level
of that specific technological approach. It cannot predict a decline or future rebirth of
the growth pattern.
Envelope Curves
A serious constraint on growth curves is overcome by appropriate specification of the
capability to be forecast. For example, Figure 4.10 shows a growth curve for the speed
of propeller-driven aircraft. As noted earlier, possible input for Figure 4.10 must be carefully
screened to make sure it includes all available data for propeller-driven aircraft, and only
data for propeller-driven aircraft.

400
300
A ir S pee d (m ph)

200

100
90
80
70
60
50
40

190 0 191 0 192 0 193 0 194 0 195 0 196 0 197 0

Year

Figure 4.10: Speed of Propeller-driven Aircraft

If we remove the modifier propeller-driven from the capability to be forecast, we can

add data on jet, ram jet, and rocket planes, as in Figure 4.11.

99
Technology Management

10,000

S p ace craft
600 0
500 0
400 0

A ir S p eed (m p h)
300 0

200 0 R oc ke t-p ro pelled

airc raft
150 0
J et-propelled
100 0

500
P rop eller-d rive n
400

300
190 0 192 0 194 0 196 0 198 0 200 0
Year

Figure 4.11: Speed of Aircraft

(We could also have included data on balloons and gliders if we wished.) if we generalize
the capability even more to "speed of travel," we get Figure 4.12, a series of specific
growth curves superimposed on one chart and enveloped by a single curve, termed an
envelope curve. Fundamentally, envelope curves are a combination of growth curve and
trend analysis.

10,000

600 0
500 0
400 0
A ir S p eed (m p h)

300 0 S p ace craft

200 0

150 0 J et-propelled
R oc ke t-pro pelled
100 0 airc raft

E n velope cu rv e
P rop eller-d rive n
500
400

300
190 0 192 0 194 0 196 0 198 0 200 0
Year

Figure 4.12: Speed of TravelEnvelope Curve Analysis

4.2.5 Substitution Model
The substitution model is based on three assumptions:
1. Many technological advances can be considered as competitive substitutions of
one method of satisfying a need for another.

100
2. Once a substitution progresses, it will proceed to completion.
3. The rate of substitution of new for old is proportional to the remaining amount of Mathematical Models for
Technology Forecasting
the old left to be substituted.
Experience shows that substitutions tend to proceed exponentially in the early years, and
to follow an S-shaped trend curve. When a substitution begins, the new process, products,
or service begins to demonstrate its advantages over the past process, products, or
service. As the new technology is able to take over some of the market, the pace of
substitution increases markedly, and then tapers off as it approaches saturation.
Examples abound in the area of industrial processes in the steel industry, the replacement
of "hot dip" tin-plating by the electrolytic process, the replacement of open hearth furnaces
by basic oxygen furnaces, and the replacement of the reversible, single-stand hot rolling
mill by the multistand mill are among the many technological substitutions that conform
to the S-shaped pattern.
The substitution model can prove useful for several types of investigation-for example,
early recognition of technical obsolescence. The major advantage of this model is that it
is simple to construct. Like all numeric data-based models, it is fatalistic in that it projects
a specific and undeviating future based on past events; it implies that a particular
progression of events is inevitable.
4.2.6 Structural Modeling
Structural modeling is an attempt to develop a mathematical or analytical model of a
technology-generation process. As with mathematical models of any process, the purpose
for model construction is to identify certain key elements, identify the functional aspects
of those elements and express these functional aspects symbolically or mathematically.
Structural models tend to be abstract and reductionist in their approach in removing what
are denied to be non-essential functions. (See Figure below.)

Figure 4.13: Structural Model of the Technology-generation Process

(Each block conceals a sub-model.)
4.2.7 Monitoring
Many forecasting techniques presuppose that the planner knows what to seek. Although
the planner may have considerable expertise, occasionally technological surprises occur.
Monitoring, or innovation tracking, allows the forecaster to stay abreast of technologies
as they develop.
This approach assumes that a new discovery goes through several stages before emerging
into public view as an innovation, and that some future technologies are currently in the
process of development, The stages to investigate are: 101
Technology Management 1. Initial idea or suggestion-the concept,
2. Postulation of theory-the research proposal.
3. Verification of theory-the scientific finding.
4. Laboratory demonstration.
5. Field trial.
6. Commercial introduction.
7. Widespread adoption.
If the research is being conducted by a nondefense governmental agency or by a university,
the process, with the exception of stage I above, is open to view by those who know
where to look-learned journals, magazines, trade association letters, and similar sources.
Once a sufficient amount of information has been accumulated, the data must be cross-
referenced with other information to determine if a new technology or product can be
generated by incorporating one or more of these events in order to develop an innovation.

4.3 SIMULATION
Simulation methods involve using analogs to model complex systems. These analogs can
take on several forms. A mechanical analog might be a wind tunnel for modeling aircraft
performance. An equation to predict an economic measure would be a mathematical
analog. A metaphorical analog could involve using the growth of a bacteria colony to
describe human population growth. Game analogs are used where the interactions of the
players are symbolic of social interactions.
Mathematical analogs are of particular importance to futures research. They have been
extremely successful in many forecasting applications, especially in the physical sciences.
In the social sciences however, their accuracy is somewhat diminished. The extraordinary
complexity of social systems makes it difficult to include all the relevant factors in any
model. Clarke reminds us of a potential danger in our reliance on mathematical models.
As he points out, these techniques often begin with an initial set of assumptions, and if
these are incorrect, then the forecasts will reflect and amplify these errors.
One of the most common mathematical analogs in societal growth is the S-curve. The
model is based on the concept of the logistic or normal probability distribution. All processes
experience exponential growth and reach an upper asymptopic limit. Modis has
hypothesized that chaos like states exist at the beginning and end of the S-curve. The
disadvantage of this S-curve model is that it is difficult to know at any point in time
where you currently are on the curve, or how close you are to the asymtopic limit. The
advantage of the model is that it forces planners to take a long-term look at the future.
Another common mathematical analog involves the use of multivariate statistical
techniques. These techniques are used to model complex systems involving relationships
between two or more variables. Multiple regression analysis is the most common
technique. Unlike trend extrapolation models, which only look at the history of the variable
being forecast, multiple regression models look at the relationship between the variable
being forecast and two or more other variables.
Multiple regression is the mathematical analog of a systems approach, and it has become
the primary forecasting tool of economists and social scientists. The object of multiple
regression is to be able to understand how a group of variables (working in unison)
102 affect another variable. The multiple regression problem of collinearity mirrors the practical
problems of a systems approach. Paradoxically, strong correlations between predictor Mathematical Models for
Technology Forecasting
variables create unstable forecasts, where a slight change in one variable can have
dramatic impact on another variable. In a multiple regression (and systems) approach,
as the relationships between the components of the system increase, our ability to predict
any given component decreases.
Gaming analogs are also important to futures research. Gaming involves the creation of
an artificial environment or situation. Players (either real people or computer players)
are asked to act out an assigned role. The "role" is essentially a set of rules that is used
during interactions with other players. While gaming has not yet been proven as a
forecasting technique, it does serve two important functions. First, by the act of designing
the game, researchers learn to define the parameters of the system they are studying.
Second, it teaches researchers about the relationships between the components of the
system.

4.4 SYSTEM DYNAMICS

System Dynamic is a method to enhance learning in complex systems. But learning
about complex dynamic systems requires more than technical tools. System Dynamics
is fundamentally interdisciplinary. Because we build SD models to solve important real
world problems, we must learn how to work effectively with groups of busy policy
makers and how to catalyze sustained change in organizations (John D. Sterman, 2000).
System Dynamic models show how action and reaction or cause and effect fall apart
and play together. Adequacy used, these methods provide a better understanding of the
problem of forecasting.
Forecasts of demand, revenues, profits, and other performance measures are a common
input to managing a business. And, while managers intellectually appreciate the
difficulties with forecasts, the use of assumptions about the future is inevitable and
necessary. Since the forecasts that come from calibrated system dynamics models
are likely to be better and more informative than those from other approaches, especially
in the short- to mid-term, we must educate our clients to make proper use of them.
This concept has three points: (1) system dynamics models can provide more reliable
forecasts of short- to mid-term trends than statistical models, and therefore lead to
better decisions; (2) system dynamics models provide a means of understanding the
causes of industry behavior, and thereby allow early detection of changes in industry
structure and the determination of factors to which forecast behavior are significantly
sensitive; and (3) system dynamics models allow the determination of reasonable
scenarios as inputs to decisions and policies.

Check Your Progress

Write a study note on the use of mathematical models in technology forecasting.

4.5 LET US SUM UP

Technology forecasting describes a group of techniques that predict, in quantifiable terms,
the direction, character, rate, implication, and impact of technical advance. This
management guide details technology forecasting techniques that contribute to better
decision making. It provides assistance for organizations to improve planning, operations,
and marketing. System dynamics models can provide more reliable forecasts of short- to
mid-term trends than statistical models, and therefore lead to better decisions. These 103
Technology Management models provide a means of understanding the causes of industry behavior, and thereby
allow early detection of changes in industry structure and the determination of factors to
which forecast behavior are significantly sensitive; and further these models allow the
determination of reasonable scenarios as inputs to decisions and policies.
Mathematical analogs are of particular importance to futures research. They have been
extremely successful in many forecasting applications, especially in the physical sciences.
In the social sciences however, their accuracy is somewhat diminished. The extraordinary
complexity of social systems makes it difficult to include all the relevant factors in any
model. Clarke reminds us of a potential danger in our reliance on mathematical models.
As he points out, these techniques often begin with an initial set of assumptions, and if
these are incorrect, then the forecasts will reflect and amplify these errors. One of the
most common mathematical analogs in societal growth is the S-curve. The model is
based on the concept of the logistic or normal probability distribution.

4.6 KEY TERMS

Mathematical Model: The most common mathematical models involve various forms
of weighted smoothing methods.
Statistical Model: A statistical model is based on a series of observations on the
phenomenon, and it delineates the pattern of the association between the various factors
or variables of the phenomenon that are of interest.
Descriptive Model: Descriptive models that are used in forecasting are often quantitative,
but qualitative ones are used as well.
Structural Modeling: Structural modeling is an attempt to develop a mathematical or
analytical model of a technology-generation process.
Trend Extrapolation: To extrapolate is to infer the future from the past. If there has
been a steady stream of technological change and improvement, it is reasonable to assume
that the stream will continue to now.
Statistical Curve Fitting: This method is applicable to forecasting functional capabilities.
Statistical procedures fit the past data to one or more mathematical functions such as
linear, logarithmic, Fourier, or exponential.
Growth Curve: This growth curve forecasting method is particularly useful in determining
the upper limit of performance for a specific technology.
Envelope Curve: Envelope curves are a combination of growth curve and trend analysis.
Substitution Model: By it many Technological advances can be considered as competitive
substitutions of one method of satisfying a need for another.
Structural Modeling: Structural modeling is an attempt to develop a mathematical or
analytical model of a technology-generation process.
Monitoring: Monitoring, or innovation tracking, allows the forecaster to stay abreast of
technologies as they develop.
Simulation: Simulation methods involve using analogs to model complex systems. These
analogs can take on several forms. A mechanical analog might be a wind tunnel for
modeling aircraft performance. An equation to predict an economic measure would be a
104 mathematical analog.
S-curve: One of the most common mathematical analogs in societal growth is the S- Mathematical Models for
Technology Forecasting
curve. The model is based on the concept of the logistic or normal probability distribution.
Multiple Regression: Multiple regression is the mathematical analog of a systems
approach, and it has become the primary forecasting tool of economists and social
scientists.
System Dynamic: System Dynamic is a method to enhance learning in complex systems.
But learning about complex dynamic systems requires more than technical tools.
Technology Forecasting: Technology forecasting describes a group of techniques that
predict, in quantifiable terms, the direction, character, rate, implication, and impact of
technical advance.

4.7 TEST QUESTIONS

1. Write a note on applications and importance of mathematical models for technology
forecasting.
2. Discuss the use of simulation in technology forecasting.
3. What are system dynamics. Discuss their use in technology forecasting.
4. What do you understand by structural modeling for technology forecasting?

4.8 SUGGESTED READINGS

Gerard H. Gaynor, Handbook of Technology Management, Mc-GrawHill.
Noori H & Radford R.W., Reading and cases in the Management of New Technology,
Englewood Cliffs, N.J. Prentice Hall, 1990.
Bowonder B. and Miyake T., Technological forecasting, Methodologies and Case
Studies.
www.foster-miller.com

105
UNIT III
LESSON

5
TECHNOLOGY CHOICE AND EVALUATION
CONTENTS
5.0 Aims and Objectives
5.1 Introduction
5.2 Technology Choice and Evaluation
5.3 Methods of Analysing Alternate Technologies
5.4 Techno-Economic Feasibility Studies
5.5 Need for Multi-Criteria Considerations such as, Social, Environmental and Political
5.6 Let Us Sum Up
5.7 Key Terms
5.8 Test Questions
5.9 Suggested Readings

5.0 AIMS AND OBJECTIVES

After studying this lesson, you will be able to evaluate:
1. The importance and need for choice of technology.
2. The process of evaluation of technology.
3. Different methods of analyzing alternate technologies.
4. The concept of techno-economic feasibility studies.
5. The need for multi-criteria considerations such as, social, environmental, and political.

5.1 INTRODUCTION
From the beginning of the industrial revolution, the priority has been to adopt as much
new technology as possible, and as quickly as possible. Our attention goes to four common-
sense criteria for choosing technologies: utility, environment, autonomy and quality. Because
we have used technology indiscriminately for so long, it will be easy to explain what
these criteria mean by finding examples of technologies that violate them - technologies
that are either useless or destructive.
The choice of evaluation methods depends on a number of factors, including: Which
evaluation areas are most important in the light of the objectives for evaluation? What
kind of information is required? For example, what is the objective of the intervention
project or programme? What is the aim of the evaluation, and who is the target audience
for results (e.g., donors, beneficiaries, implementing organization)? Are the data intended
to produce statistically significant results? Evaluation is often time-consuming, expensive
Technology Management and requires skill in planning, data collection, analysis and reporting. Many organizations
may find it necessary to develop their human resources further through training, to
partner with organizations with more evaluation experience or to involve specialists,
such as healthcare workers or university researchers. It is paramount in evaluation planning
to ensure that:

1. the right amount of data is collected, avoiding wasting resources by collecting neither
too much nor too little data; and

2. the right type of data is collected, avoiding omitting essential data or linkages, and
avoiding gathering irrelevant data.

Almost all the evaluation methods produce either quantitative or qualitative data.
Quantitative methods track changes in 'quantifiables', while qualitative methods reveal
perspectives, perceptions or behaviours. Broadly, quantitative approaches are more
suited to medium- or large-scale evaluations, where information can be standardized
and where respondents are likely to give accurate answers to questionnaires. They
are particularly suited to more technology-focused interventions and include performance
testing, monitoring and questionnaires based on closed questions. Qualitative approaches
include in-depth open-ended interviews with groups or individuals, observations and
the use of participatory methods, such as focus group discussions. These are useful
for understanding what kind of issues to consider in any evaluation. Qualitative
approaches can be used alone, as well as play an important role in developing
quantitative approaches, and in providing contextual data to explain the results of
quantitative analysis. It should be noted that quantitative data analysis and qualitative
data analysis are very different and require distinct skills. For example, an expert in
analysing emissions or exposure data may not be skilled to analyse interview transcripts
on women's welfare or empowerment.

Table 5.1: Example of an Evaluation Plan

Technology performance and indoor air pollution monitoring

A challenging evaluation strategy suitable for organizations with considerable skills and evaluation
resources and medium- to large-scale projects or programmes.
Organizational requirements Intervention requirements
Considerable resources, skills, capacity and Intervention requirements
time for evaluation, in particular: Not appropriate for small-scale projects or
v Capacity and skills to develop an programmes due to the need for sufficiently
evaluation strategy and study design. large sample sizes and substantial financial and
v Skilled personnel for undertaking the technical resources
evaluation, including specialists in IAP
monitoring and technology
performance testing.
Resource requirements Contribution to International evidence base
Access to technology performance testing If well-planned and carefully undertaken, data
devices, including digital thermometers, generated from these evaluations will contribute
scales and stopwatches. to the international knowledge base.
It resources and skills for analysing
significant volumes of data.
Pump and fitter-type devices for measuring
particulate concentrations, and access to
laboratories for processing fitter papers.
110
Co colour change diffusion tubes.
 Technology Choice and
5.2 TECHNOLOGY CHOICE AND EVALUATION Evaluation

Technological forces require that management keep abreast of the latest developments
and where possible, incorporate advancements to maintain the organisations
competitiveness. The right technology at the right time would bring in the requisite benefits.
For example, Aetnas Hartford based small business market group, which sells life and
health insurance to small businesses, started using laptop computers and new software
to enroll prospective members at the customers site and print out ID cards instantly.
The on-site process is accomplished in less than half a day. This process saved Aetna
$20 million in 1992 (G Rifkin, 1993). Marutis success in the automobile sector is
attributable to a large extent, to the right choice of technology employed in producing a
low-cost, fuel-efficient car in India. Companies like Telco, Tisco, Ashok Leyland, L&T,
Ranbaxy, Crompton Greaves, etc., have gone for reengineering their work processes
long back with a view to serve the customers more efficiently (M Thomas 1994).
Box 5.1: Reengineering Work Processes

Reengineering focuses on creating new ways to get results. It involves the redesign of
processes related to logistics, manufacturing and distribution. The objective is to design
the most effective process for delivering a product or service. Effective processes are those
that cost the least while at the same time producing services of excellent quality rapidly.
Thus, the starting point is to assess current processes from the customers point of view.
Reengineering requires both managers and employees to think across functions. When
applied to business, reengineering demands management to start everything with a clean
sheet of paper rethinking and redesigning those processes by which the organisation
creates value and does work, ridding itself of operations that have become outdated in the
computer age. The focus is on core processes rather than functions (processes that transform
material, capital, information and labour into products and services that the customer values).
The emphasis is on distinctive competencies of an organisation (what it is that the
organisation is more superior at delivering than its competition) such as higher quality
products (Gilette shaving system), a more efficient distribution system (Bata), a more
knowledgeable sales personnel (HLL, P&G) or superior technical support (Carrier Aircon,
Whirlpool etc). According to R E Crompton, the following guidelines should be kept in
mind while reengineering any company:

l Give people a mission, a clear view of how to reach the targets.

l Serve the customer superbly. Otherwise do not even try.

l Change is the way of life. It is not a process. It is a value.

l Focus on how to use technology effectively.

l The wrong answer rarely kills you. What it does is waste time.

l Reengineering demands a strong commitment from all employees. It is agonisingly

and heart-breakingly tough. It calls for a near heroic effort, dedication and belief.

l Once people catch on to reengineering, you cant hold them back. It is a lifetime
opportunity.

Technology is strategic in the sense that decisions regarding its choice are irreversible
and costly. The impact can be quite serious, for, a wrong choice, a small mistake may
spell the end of a business. Businesses that failed to see the writing on the wall quickly
and move with the times using efficient processes and latest technologies had to
draw the shutters down. History is replete with horror stories of this kind-e.g. Ambassador
cars, Fiats, Bullets are relics of the past now. Steel companies, jute manufacturers, 111
Technology Management pharma companies, sugar units, auto-component suppliers have paid a heavy price for
reposing their faith in antiquated technologies in India. Market forces, as we all know,
ruthlessly crush those firms that do not run with the times and change their processes
rapidly in line with global trends. This requires strategic thinking, advance planning and
timely actions.
Technology Acceptance Model
The Technology Acceptance Model (TAM) is an information systems theory that
models how users come to accept and use a technology. The model suggests that when
users are presented with a new technology, a number of factors influence their decision
about how and when they will use it, notably:
l Perceived Usefulness (PU): This was defined by Fred Davis as the degree to
which a person believes that using a particular system would enhance his or her job
performance.
l Perceived Ease-Of-Use (PEOU): Davis defined this as the degree to which a
person believes that using a particular system would be free from effort (Davis,
1989).
TAM is one of the most influential extensions of Ajzen and Fishbeins theory of reasoned
action (TRA) in the literature. It was developed by Fred Davis and Richard Bagozzi
(Bagozzi et al., 1992; Davis et al., 1989). TAM replaces many of TRAs attitude measures
with the two technology acceptance measuresease of use, and usefulness. TRA and
TAM, both of which have strong behavioural elements, assume that when someone
forms an intention to act, that they will be free to act without limitation. In the real world
there will be many constraints, such as limit the freedom to act (Bagozzi et al., 1992).
Bagozzi, Davis and Warshaw say:
Because new technologies such as personal computers are complex and an element of
uncertainty exists in the minds of decision makers with respect to the successful adoption
of them, people form attitudes and intentions toward trying to learn to use the new
technology prior to initiating efforts directed at using. Attitudes towards usage and
intentions to use may be ill-formed or lacking in conviction or else may occur only after
preliminary strivings to learn to use the technology evolve. Thus, actual usage may not
be a direct or immediate consequence of such attitudes and intentions. (Bagozzi et al.,
1992)
Earlier research on the diffusion of innovations also suggested a prominent role for
perceived ease of use. Tornatzky and Klein (1982) analysed the adoption, finding that
compatibility, relative advantage, and complexity had the most significant relationships
with adoption across a broad range of innovation types. Eason studied perceived usefulness
in terms of a fit between systems, tasks and job profiles, using the terms task fit to
describe the metric (quoted in Stewart, 1986)
Criticisms of TAM as a theory include its lack of falsifiability, questionable heuristic
value, limited explanatory and predictive power, triviality, and lack of any practical value.
Independent of TAM, Scherer developed the Matching Person & Technology Model in
1986 as part of her National Science Foundation-funded dissertation research. The MPT
Model is fully described in her 1993 text, Living in the State of Stuck, now in its 4th
edition. The MPT Model has accompanying assessment measures used in technology
selection and decision-making, as well as outcomes research on differences among
112 technology users, non-users, avoiders, and partical/reluctant users.
 Technology Choice and
5.3 METHODS OF ANALYSING ALTERNATE Evaluation
TECHNOLOGIES
The methods of analysing alternate technologies basically depend on the technology
strategy and business goals of the organisation concerned. For example, ERP
implementation.
Technology strategy is basically concerned with choices between alternative new
technologies, the manner in which they are implemented into new products and processes
and the utilisation of resources that will allow their successful implementation. It cuts
across such functional policies as finance, manufacturing, marketing, R&D, as well as
corporate-wide policies regarding product-market focus, personnel, resource allocation,
and control.
Technology strategy is an important but often ignored link in the strategy formulation
process. This is not to state that technology is thoroughly discounted by technology-
intensive companies, but it generally comes in a fragmented, piecemeal fashion as part
of other functional strategies such as marketing. This is understandable, as the concept
of technological strategy is relatively new and is yet to take firm roots in the strategic
management skills set. With new technologies making serious inroads into the
manufacturing processes of most industries in recent times, a technological strategy
needs to be given proper weightage and due importance. To develop such a strategy,
several major issues should be considered thoroughly.
l Developing generic strategies for technology-based businesses in corporate portfolio.
l Choosing product-market combinations in the light of their evolving technological
needs.
l Understanding sources of technologically-based synergies and technological
leverage.
Box 5.2: Fundamental Technology-related Questions

l What technologies should be the basis of our business?

l In which technologies should we become proficient? What distinctive technological

competencies does our business require?

l How should those technologies be embodied into products. What criteria or guidelines
should we use to design our products?

l Where should we obtain the requisite technologies?

l How much should we invest in technological development or purchases?

l How should we organise and manage technology and innovation?

l When should the technology be introduced to the market?

Source: R A Burgelman and M A Maidique, Strategic Management of Technology and Innovation, Irwin,
Homewood, Ilinois, 1988.

While making choices regarding technology, a firm has to pay special attention to the
following issues (Maidique and Frevola).

113
Technology Management Figure 5.1: Technological Policy Framework

Inv R
es & D
tm
en
t$

Firm

gical develop
n olo me
ch

Te

nt
R&D Timing
New products
organisation and of
and processes
policies entry

a nd
syn thesis (design)

s
gie
n olo
h
tec ing s
w s r
Ne icen etito s
L mp nt
l o l t a
C nsu es
l hr i
Co
l New
l

l Selection: What technologies to invest in are promising from the perspective of

existing, new, or related product lines? How should proposals for new technologies/
products be evaluated? What technologies provide opportunities for improved
product performance or lower cost?
l Embodiment: How should these technologies be utilised in new products? What
performance parameters should dominate?
l Technology sources: To what extent should a firm rely on internal development?
To what extent should external sources, such as contract research and licensing
from individual inventors, research and engineering firms, and/or competitors, be
relied upon?
l Competitive timing: Whether to lead or lag new product introduction. Consider
the benefits of leading versus the risk of uncertain market acceptance of a new
product. Are there benefits in developing an improved product after allowing a
competitor to go first, then evaluating market acceptance?
l Level of R&D investment: How much to invest in technologies and internal staffing
versus external staffing? Should the firm let R&D investment or profit oscillate?
l Organisation and policies for R&D: Should there be a central R&D facility?
How should it be structured? Is a separate career track needed for scientists with
compensation compatible with or leading the industry? Project teams versus matrix
organisation for the sharing of resources? How closely will top management be
involved in technological decisions? How to allocate funds for R&D projects?
What should policies be concerning patents, publications, and protecting technological
know-how?
l Competence levels: Given the competitive environment, how close to the state-
114
of-the-art should a firm be in a technology to achieve its objectives? How proficient
 should the firm become in understanding and applying the technology? Should the Technology Choice and
Evaluation
firm emphasise straightforward applications of the technology through product
engineering, or emphasise advancing knowledge of technology through basic or
applied research?

5.4 TECHNO-ECONOMIC FEASIBILITY STUDIES

Techno-Economic Feasibility Studies have become a very critical tool. Infrastructure
projects encounter many hindrances during implementation and involve huge investments.
In identifying the projects for implementation, it is essential to examine the technical,
environmental and social viability of the project and is also required to justify importance
of investment in the project in terms of need as well as benefit to the society.
A feasibility study is a detailed analysis of a company and its operations that is conducted
in order to predict the results of a specific future course of action.
Techno- economic feasibility report become crucial for an organisation because the
professionals gauge the feasibility of the project on the technical and economic front for
our esteemed clients. These professionals assess every limitation vis-a-vis technology
and the economic benefits it can provide to the organisation and to guide them in the right
direction. The assessment or the analysis is primarily done on the basis of the industrial
standards and organizational structure of the clients.
Small business owners may find it helpful to conduct a feasibility study whenever they
anticipate making an important strategic decision. For example, a company might perform
a feasibility study to evaluate a proposed change in location, the acquisition of another
company, a purchase of major equipment or a new computer system, the introduction of
a new product or service, or the hiring of additional employees. In such situations, a
feasibility study can help a small business's managers understand the impact of any
major changes they might contemplate.
It is important to conduct a feasibility study to start your course of action, it will provide
you with objective information to evaluate existing services and strengths. You will gain
an understanding of the competition and marketplace indicators that affect your business.
This is the best way for you to grasp the impact of future decisions you may be considering.
The feasibility study will help you accurately anticipate what will and will not work in
varied situations. You will be able to determine what resources are essential to complete
varied situations and gain an understanding of how to have a SWOT analysis of your
existing concern.
Steps in Conducting a Feasibility Study
The main objective of a feasibility study is to determine whether a certain plan of action
is feasible-that is, whether or not it will work, and whether or not it is worth doing
economically. Although the core of the study is dedicated to showing the outcomes of
specific actions, it should begin with an evaluation of the entire operation. For example,
a good feasibility study would review a company's strengths and weaknesses, its position
in the marketplace, and its financial situation. It would also include information on a
company's major competitors, primary customers, and any relevant industry trends. This
sort of overview provides small business owners and managers with an objective view
of the company's current situation and opportunities. This also provides information on
consumer needs and how best to meet them, a feasibility study can also lead to new
ideas for the strategic changes with techno- economic feasibility.
115
Technology Management A good feasibility study should focus on the proposed plan of action and provide a detailed
estimate of its costs and benefits. In some cases, a feasibility study may lead management
to determine that the company could achieve the same benefits through easier or cheaper
means. For example, it may be possible to improve a manual filing system rather than
purchase an expensive new computerized database. If the proposed project is determined
to be both feasible and desirable, the information provided in the feasibility study can
prove valuable in implementation. It can be used to develop a strategic plan for the
project, translating general ideas into measurable goals. The goals can then be broken
down further to create a series of concrete steps and outline how the steps can be
implemented. Throughout the process, the feasibility study will show the various
consequences and impacts associated with the plan of action.
To make it more result oriented and useful, a feasibility study should be performed by a
qualified consultant in order to ensure its accuracy and objectivity. To be able to provide
a meaningful analysis of the data, the consultant should have expertise in the industry.
The small business owner must be sure that those conducting the study have full access
to the company and the specific information they need. It is also important for small
businesses to assign an internal person to help gather information for the feasibility study.

5.5 NEED FOR MULTI-CRITERIA CONSIDERATIONS

SUCH AS, SOCIAL, ENVIRONMENTAL AND
POLITICAL
5.5.1 Need for Social Considerations
The underlying technology needs to be standards based. Interoperability between disparate
systems is no longer an optional feature but a business imperative. For as long as we use
industry standards, we can improve on interoperability between systems. For example
the case study of the selection of telecommunication technology. Here, a method to
perform a comprehensive evaluation and selection of the best telecommunication
technology in today's Internet environment is proposed. The proposed evaluation method
is a practical and easy to use decision support tool which does not require the knowledge
of a sophisticated mathematical model.
As is evident from evolution of technology that the evaluation of emerging information
technologies has proven to be a great challenge for managers and technical experts
alike. The most knowledgeable "expert" on a new information technology often cannot
predict the upcoming changes for more than a few months into the future. This problem
is compounded when the technology in question deals with telecommunications. The
major reason for this is that telecommunication technologies have advanced at a much
faster pace than the methodologies used to analyze the cost/benefit evaluations associated
with their investments.
New technologies and unplanned changes in older ones are not embraced due to a lack
of proper assessment procedures. "Many opportunities arise for organizations, but some
are passed over because they appear too costly, too risky, or just too hard to pursue".
Possibly even worse is the scenario where a new telecommunication technology is touted
as the "silver bullet," with large amounts of resources being clumsily invested without a
comprehensive analysis of potential returns. The results of these types of erroneous
decision procedure are often a collection of incompatible computers and software, along
which other office technologies that should, but don't, "link together". Presently, investment
analyses of telecommunication technologies, as with other information technologies,
116
typically hinge on cost savings and do not reflect any strategic returns such as increased Technology Choice and
Evaluation
sales through better customer service, or better quality products or services, or risks
involved with security and obsolescence. The inclusion of such intangible socio-technical
and risk factors may cause some technologies to be embraced that would otherwise
have been neglected with traditional cash flowbased analyses. The tendency of
overlooking these intangible factors, which is present in a large percentage of companies
with respect to other information technologies as well, is the antithesis of a rigid structure
that looks naively at cash flows as the only available option for deciding which technology
should be embraced.
It would be important to discuss here a comprehensive IT evaluation methodology
combining a web of system performance (WOSP) together with a quantitative evaluation
and selection methodology (QESM) for evaluating and selecting from among alternative
Asynchronous Transfer Mode (ATM) technologies. ATM is an emerging
telecommunication technology that has been hailed as the key to true integration of the
Internet and networking with all facets of corporate operations. Currently, there is no
published methodology or model, which includes both subjective and objective evaluation
criteria, combined with socio-technical criteria under one unified approach, to deal directly
with this important problem.
5.5.2 Need for Environmental Considerations
Another important criterion is environmental soundness, using the word environment in
the broadest sense. Does the technology create costs for unwilling third parties? A small
example that clarifies what this criterion means is the remote control automobile lock
that beeps the horn to reassure the user that the door is successfully locked, which has
become ubiquitous. Using remote control instead of a key is a minor convenience for the
consumer, and the beeping horn is a minor nuisance for everyone else. We could have
the convenience without the nuisance, if cars flashed their lights to show that the door
was locked instead of beeping their horns. Currently we just think about cost and
convenience to the consumer, not about the nuisance to third parties. We would all be
better off if we thought about total cost, including environmental costs. It is easy to come
up with bigger examples of the same principle. Off-road vehicles, jet skis, and other
"thrill craft" are usually very noisy. They are a minor form of amusement for the consumer
and a significant nuisance for every one nearby - particularly for people who took a trip
out of the city in to find some peace and quiet. The off road vehicles also tear up the
land, and the jet skis dump oil in the water. The prominent example of this principle is our
overuse of fossil fuels, which has released so much carbon dioxide into the atmosphere
that global warming will impose huge costs on future generations. Most of America's
electricity is generated by burning coal, which emits twice as much carbon dioxide as
natural gas. Solar electric power costs about twice as much as power generated using
fossil-fuels, but it emits no carbon dioxide. If we took into account all costs, including
future environmental costs, we would shift to solar power, even at its current price; after
it became widespread, its price would go down.
5.5.3 Need for Political Considerations
Sometime incompetent less qualified politicians may take it for granted, due to lack of
knowledge or lack of willpower, or due to political turmoil of coalition politics. But
technology is probably the single most important force shaping social change that mankind
has ever experienced. Whether you want to focus on the third world, or the third millennium,
the presence of modern technology is decisive, both in terms of the availability of
alternatives, and of the making of choices. Despite its enormous importance however,
technology is poorly understood, and inadequately controlled. 117
Technology Management Also in a political scenario like India, sometimes, these two insufficiencies are related,
for it is our poor understanding of technology that limits our willingness and our ability to
control it. Nevertheless, the social and environmental impacts of technology, being
cumulative, have begun to pose problems and dilemmas we can no longer ignore. The
consequences of technology have become too important to be left exclusively to either
the entrepreneur (laissez faire) or the engineer (laissez faber). Hence our technological
prospects confront us as both a threat and a promise, depending upon whether or not our
politicians act responsibly.
Now the question arises, can technology be controlled, and if so, how? After all, there is
no reliable and consistent way of prophesying future inventions and innovations. Yet new
products and processes can render obsolete both existing configurations and their
contingencies of control. How can we possibly direct what we can't foresee? The answer
to that question forms the substance of this chapter. It is essentially premised on an
indirect strategy. That is to say, it is not necessary to be able to predict the particular
workings of new technologies to be able to exercise control over their social and
environmental impacts. Because, regardless of our ignorance about the specifics of
future developments, the creation of new technologies arises out of a systematic set of
social relationships which can themselves be delineated and directed.
There is need of controlling the conditions under which technology is created, by doing
so the policymakers can restrain the rate at which it is introduced, mandate its terms of
design and performance, and ameliorate its adverse impacts through evaluation and
internalization. Such an integrated approach does, however, require the recognition and
deliberate use of a Technology Policy System. And since government policies and public
opinion, as much as business decisions, will inevitably influence the climate for responsible
development, a co-operative endeavour is essential. Only then can we ensure that our
technology serves as a means to human and humane ends, rather than just a juggernaut
to carry us to our doom.
In some perceptions of technology, there is more of myth than of mechanism. But whether
it be the benevolent image of a messiah, or the malevolent image of a moloch, it is largely
misperceived. Technology is neither magic nor machines per se, so much as methodology.
It should not be confused with its other partner in natural philosophy, namely science,
which is the methodology for the determination of the most probable. Instead, technology
is the capability to control the storage, transfer and transformation, of matter, energy and
information, through the use of concepts, skills and artifacts.
Therefore, while technology serves a control purpose, science serves a cognitive purpose.
It is important to understand that effective control requires regularized procedures. And
it is why, the development and application of technology has become progressively more
rationalized during the modern era. This has occurred to such an extent, that technology
is increasingly characterized by a distinct set of systematic relationships.
There are a number of factors which contribute to technological change and are
systematically related, so the governing instruments employed to manage them also
constitute a policy system. For these purposes, the model which recommends itself is the
familiar three-stage, flow-through arrangement, as subsequently modified to give greater
depth of analysis. This permits the delineation of systemic variables (inputs, withinputs,
outputs), systemic parameters (structure, process, ideas), and positive and negative
feedbacks. The Technology Policy System is meant to represent conditions for the creation
of new technology rather than subsequent commercialization or diffusion. Of course,
once the design and development work is done, inventions and innovations serve as
118 output to the larger firm or wider market. And it is the reception such outputs get, that
determines the nature of the feedbacks. But since the focus of attention is the development Technology Choice and
Evaluation
of new technology, all factors external to this process are considered only insofar as they
are funnelled through primary inputs or feedbacks. In this way, the system boundary is
kept distinct.

Figure 5.2: The Technology Policy System

It is important to recognize that the analytical depth achieved through the delineation of
parameters (structure, process, ideas) represents only different aspects of the system
rather than separate parts. But although structure, process and ideas are synthesized in
practice, they can be usefully distinguished for purposes of analysis.
5.5.4 Need of Framework for Consideration and Analysis of Trends, for
Policymakers
Inputs
There have been a number of instances which corroborate the fact that a good many of
the inventions which eventually find their way onto the market still originate with creative
individuals working alone. Even in these cases however, the process involves investment.
Often such a person's time over an extended period is just as crucial as money, although
such commitments have been known to be strong enough to absorb all discretionary
income in the hope of success. But whether it is a single individual striving in a lone
workshop, or a team employed in a corporate research and development laboratory, the
structure of the investment is identical. Person-years (in terms of time and skills), and
expenditures (in lieu of wages and salaries, equipment and facilities), are the standard
units of analysis throughout the Organization for Economic Cooperation and Development
(OECD) countries. OECD member governments now accumulate and publish figures in
these areas, so that trends can be studied and comparisons made. Furthermore, the
recommended database categories and conventions are elaborate enough to permit quite
a refined analysis.
119
Technology Management It is very difficult to accumulate data of the statistics on investments by individuals,
since such people rarely keep exact records or report their efforts to the authorities. But
the great preponderance of such investments is by organizations anyway. Investment in
corporate, and government R & D, accounts for most of such persons-years and
expenditures. Even when the lone inventor does succeed, the development work necessary
to turn the idea into a commercial innovation requires resources far in excess of what a
single person can usually provide.
There are two basic ideas motivating such investment: equity is the revenue-generating
concern, and is usually identified with investment in product research; economy is the
cost-reducing concern, and is usually identified with process development. However,
these two objectives are not "hard and fast", "either-or" categories. While the industrial
corporation may undertake R&D with both goals of product and process development in
mind, its ultimate goal is innovation that would increase the rate of return on its capital, its
profitability, which responds both to an increase in revenue and decrease in cost. What
equity and economy do provide are indicators of the timing, rate and rationale for
investment, so that it can be managed and monitored.
Withinputs
Many policy-makers prefer to treat technology as a mysterious black box, indispensable
but impermeable. If technology is to be understood and controlled, it is essential to look
inside that black box, to see the circumstances under which inventions and innovations
originate.
The structure of behaviour which produces new technology is generically referred to as
Research and Development. The specific organization of these activities varies from
project to project, depending upon the objective, personnel and facilities involved.
Nevertheless, certain features persist across the different occasions. Firstly, both the
social and technical dynamics of R & D are animated by the opportunities and constraints
effecting the communication of timely and significant information. Productive R&D
requires a continuous and constructive flow to and between participants.
The ingenuity required to transform this knowledge into design specifications is a question
of skill, not sorcery. It is often true that those involved in creative design cannot articulate
all of the factors or influences they bring to bear on a problem, but the process is eventually
amenable to retroduction (attribution of causes), rationalization (delineation of standards),
and replication (application of methods). In fact, the science of design is now so far
advanced that expert knowledge is being transferred to computer programs where it can
outperform even the most competent of professionals on structural and functional analysis.
The concepts which are the goals of the design process are those of elegance and
efficiency. "Elegance is the key to good design". This means a combination of features
characterized by both simplicity and utility. For instance, a "machine must perform all
necessary actions, and no unnecessary ones, with the fewest possible parts. Generally in
a good mechanical design the same part or series of parts simultaneously transmits
power, transforms motion, and controls the speed and direction of movement, in this way
minimizing the number of parts and preventing unwanted action".
Efficiency is the key to affordable design. This means consideration of the costs of
building, operation and maintenance. Fabrication expenses, performance requirements,
and outlays for repair and upkeep, can all serve as limits on the choice of configuration.
Depending on what priority is given to saving on human labour, energy resources, or
120 material and equipment, the final form can differ considerably. Furthermore, design criteria
have varied in their importance in the past, and will undoubtedly continue to do so in the Technology Choice and
Evaluation
future.
Outputs
Once the investments have been made, and the Research and Development conducted,
the tangible results which appear as outputs are inventions and innovations. Contrary to
a widespread view, most technological advance does not occur either randomly or
haphazardly. The performance characteristics of technologies develop along particular
dimensions through explicit design endeavours. Over time, this leads to a pattern wherein
the technological potential of a new concept is progressively embodied in a series of
successive improvements until the latent feature is fully realized or mature. The cumulative
improvement in this process follows a familiar "S" shaped, logistic type curve. Advance
is initially slow or small, then changes accumulate quicker and/or develop more
dramatically, but eventually improvement with that particular configuration tapers off
and additional progress awaits another breakthrough which can in turn be exploited in
similar sequence.
The utility of this cumulative improvement is the enhancement of performance which
use of successive inventions and innovations makes possible. Performance can improve
in quality or quantity. This process of improving performance enables new ideas to be
put into practice and/or permits existing activities with decreasing unit costs. The bottom
line is improved competitiveness for producers and extended choices for consumers.
What should be equally clear however, is that there is nothing inevitable or immutable
about the configuration of any particular technology. The size, shape, weight, colour and
performance characteristics of products and processes are determined predominantly
by commercial and political considerations rather than by scientific or technological limits.
Alternative design specifications are possible, embodying different features and producing
different impacts. In any one case therefore, the decision as to which options are included
or excluded must satisfy two criteria. One of these is efficacy, the question of the
performance adequacy of the proposed configuration. In other words, will it be effective
in giving the desired results? The other criteria is continency, will the impact of its use
justify its adoption? Depending on the circumstances, these criteria may be either
complementary or in conflict, so each instance must be judged on its own merits. In
principle however, as efficacy has increased so has the risk of catastrophic continency.
Hence, the exercise of responsibility is imperative if we are to avoid designing ourselves
into disaster.
Positive Feedback
After an innovation is commercialized or otherwise diffused amongst outlets, the prospects
for either a further generation of innovation, or the possible modification of the existing
innovation, depends on feedback from the wider society. Positive feedback encourages
further technological development.
First aspect of positive feedback is demand. Without adequate markets for commercialized
innovations (or captive audiences in the case of authoritative allocations), novel approaches
or even improved versions remain unused, and after a while, unproduced. Sufficient
demand, on the other hand, not only stimulates additional innovation, but in the process,
transforms the economy itself. The shifting locus of economic dynamism, from resource
extraction, to industrial manufacturing, to information and services, has occurred as a
direct result of widespread demand for the products and processes embodying
technological change. This latest phase of technological advance has also transformed
121
markets, from numerous national ones, to predominantly global ones.
Technology Management Second aspect of positive feedback is supports. These come in the form of infrastructural
inducements. Positive law plays a big role here, in the guarantees and protections it
provided through legislation on Limited Liability, Joint Stock Companies, Patents, Design
and Trademarks, and Trade Secrets. "A market only exists when the State can and does
guarantee to individual men, freedom to use or not to use goods which are associated
with them personally by some defined set of criteria, to offer them to others or to withhold
them, as they please.
There is nothing natural about even the freest markets; every market is an artifact, a
creation of positive law. It comes as a considerable shock to most businessmen to learn
that their economic world is a man-made thing, the result of positive legislation which
arose out of specific historical circumstances, which could have developed in a different
way, which could now be changed or even abolished, still within a private property
system. Besides positive law, there are other infrastructural supports to innovation.
Particularly important are networks for the dissemination of technical information on
current developments, and institutionalized expertise providing advisory assistance to
prospective inventors and innovators. Businessmen have no difficulty in seeing the positive
law which restricts them, but they are almost totally blind to the positive law which puts
them into business in the first place, and keeps them there.
Negative Feedback
It is useful to have provisions for discouraging some types of, or aspects of innovations,
because the effects of particular technologies cannot automatically be assumed to always
be benign. This is the role of negative feedback. Limits on the supply of expenditures
and personnel are one kind of negative feedback. In the short term this is effected by
business decisions about investment and/or government provisions for industrial assistance.
For the longer term, government support for post-graduate education and research in the
present actually determines the supply of skilled personnel available for future technology
development. Hence, supply is a decisive instrument for controlling the rate of
technological advance.
The other kind of negative feedback consists of policy constraints. Since the consequences
of many technologies in the past have proven to be unanticipated, undesirable, and
irreversible, wisdom suggests that technology policy in the future should constrain the
introduction of new innovations to small scale and short duration pilot and demonstration
projects. This would permit performance to be evaluated and allow design modifications
before the technology became so diffuse or problematic that amelioration would be
prohibitively expensive. Policy constraints can also be a vehicle for public participation in
the making of technology policy.
And the electorate is likely to become increasingly concerned as technological change
looms ever larger in their lives. For example, CPM led by Carat, put obstacles in adoption
of Atomic power, with some agreement with US, it had to face serious jolt in the 2009
LokSabha polls. People in its stronghold WB preferred the Congress-Mamta led TMC
alliance. In this respect, energy technology is also applicable to the rest of our technologies.
If the solution to our energy problems is one which precludes any real public participation
in decision-making, then that might not be the best policy after all. We are, at least at the
margin, prepared to trade off efficiency of outcomes in order to allow more democratic
participation in selecting them. And, if technological decisions cannot be made
democratically, then perhaps they should not be made at all.
It's not as if existing technology policy was neutral. Industrial technology does not grow
out of self-contained logic of scientific or technical necessity: which technologies develop
122 and which languish depends crucially on the structure of the markets for the technologies'
products; and the structure of the markets depends on such fundamental political Technology Choice and
Evaluation
circumstances as rights to property and the distribution of wealth. Extending public
participation would simply confirm our recognition that the consequences of technology
have become too important to be left exclusively to either the entrepreneur or the engineer.
5.5.5 Guidelines Needed for Policymakers
Governing Instruments
The Technology Policy System is applicable to technology development policies of both
business and government. Here attention is focused predominantly on government
initiatives, and specifically those that act by way of feedback in the Technology Policy
System. The tools of government (governing instruments), whereby policies are translated
into programs, can usefully be classified into four categories:
1. money
2. services
3. rules
4. messages.
Taken together, these constitute a tool kit of alternative approaches for achieving political
purposes. Within these categories are the various programs actually utilized to provide
feedback to technology development.
Table 5.2: Governing Instruments

Money Services Rules Messages

(1) financial (3) manpower (5) legal (7) policy
services training provisions pronouncements
(2) procurement (4) support (6) regulatory (8) promotional
arrangements facilities regimes efforts

These different types of instruments do not necessarily correspond directly to particular

kinds of feedback, because programs can incorporate both positive and negative influence.
In designing these programs however, the criteria of supply and demand, supports and
constraints, must be kept in mind if programs are to function and co-ordinate effectively.
One heuristice that can help facilitate this policy design process is to conceptualize cash-
flow as the indicator of supply and demand, and information-flow as the indicator of supports
and constraints. Program configuration will then need to include consideration of rates of
flow, total amounts, minimum thresholds, and saturation points for each of these indicators.
But won't this kind of intervention disrupt the market and undercut the profit motive?
"Interference with market forces is necessary if we are to have innovation, but such
interference must be deliberately and precisely related to the innovation that is required,
and limited correspondingly. The contemporary crisis is due, more than anything else, to
the way in which we have got the priorities exactly reversed -- an unplanned pattern of
interference with market forces leading to innovation and wealth of kinds that have
given economic freedom a bad name".
Cases where social benefits exceed private returns, where returns on technology surpass
other instruments, where viable developments lack adequate funding, or where private
investment horizons are too short-term, may appropriately be assisted. Cases where
private returns exceed social benefits, where other alternatives are better investments,
where sufficient funding is available, or where social costs outweigh private benefits,
should not be assisted, and perhaps even resisted. 123
Technology Management Money
There are many existing programs which offer industrial assistance for Research and
Development. One survey of federal government incentives concludes that those available
in the early 1980s were so generous that together they exceed similar provisions in all
other industrial and industrializing countries. Many such programs are largely illusionary
though, because they do not offer the kind, or amount, or timeliness of assistance which
is needed. Compounding this situation is the fact that most of the expenditure grants and
tax exemptions which are given have no performance requirements whatsoever. Hence,
much of governmental support for R & D is neither appropriate nor accountable.
Sufficient experience is now available that such programs can be accurately targeted. A
judicious mixture of tax incentives loans and grants, tax credits can be designed to both
offer assistance where it is truly needed, and ensure that doing so represents real value
for public investment.
Provisions can also be made flexible enough that the particulars can be adjusted as
conditions of need change. Programs elsewhere have shown that enough discretion can
be built into the budget to authorize alternation in tax rates and depreciation schedules, as
well as to permit initiation or blockage of expenditures on short notice, as circumstances
require. The other money instrument is procurement. Government contracting for future
output can provide cash advances or loan guarantees for the development of new end-
products and/or manufacturing processes. Much of American automation was financed
in this way, as part of the weapons procurement programs. Similarly, the government of
Japan provides an assured first market for many domestically developed informatics and
telematics innovations.
This approach could work through either purchase or leasing. The central government
should develop a leasing process to provide extra incentive for potential users of new
machinery and equipment. It would help to expand the domestic market opportunities for
firms with products at an early stage of development and market testing. By reducing
the capital outlay of initial users, it would increase demand in domestic markets and
speed the diffusion of domestic technology. Governments should also buy from domestic
firms when that will encourage innovation.
Service
Whenever proposals are made for industrial strategies or policies, two kinds of concerns
are raised. One is the question of market interference. That can be dealt with by pointing
out that intervention already occurs, so why not use it to good purpose? The other concern
is that of "government failure", which is the bureaucrats' inability to pick winners and
losers. The answer to this is that the aim is not to replace the market, but to complement
it. Such is the role of supplementary services. Support facilities can make a major
contribution to technology development. Governments may manage their own buildings
and equipment for R&D, or arrange operation and maintenance for others.
Government laboratories should share their apparatus, space, and personnel, or
transfer technologies for commercialization once research has been completed.
Information systems on technical developments and patent coverage could be
rationalized and extended. Institutional provisions for study, teaching, and consulting,
should be initiated and consolidated. These facilities and others like them can support
emerging winners, as the need arises, and with the kind of help which is likely to
further contribute to their success.
124
The government should lay special emphasis on the education and manpower training Technology Choice and
Evaluation
for technology development. Positive industrial policy should focus on those industries
and products where the dynamic economies are based on the acquisition of skills by
labour and management, rather than investment in physical capital. Qualitatively, higher
education and manpower training has produced many excellent researchers and a number
of notable discoveries and innovations. Nevertheless, it would be a mistake to narrow
federal support for post-secondary instruction exclusively to technical specialization
programs. With the advent of flexible manufacturing systems, society needs a flexible
education approach to teach general adjustment as well as particular skills. More than
ever, in this period of rapid change and social dislocation, the provision of adult education
should serve a wide range of economic, social, political and individual purposes.
Rules
In view of the emerging expense of research, development and commercialization,
innovations are usually feasible only if their promoters can get substantial returns on
their investments. The legal system is one set of social rules intended to facilitate this
outcome. This is most effectively guaranteed by creating property rights in the ideas
embodied in the design and promotion of innovations. Legal provisions protect Limited
Liability, Joint Stock Companies, Patents, Design and Trademarks, and Trade Secrets.
All of these, one way or another, make the creation and commercialization of innovations
possible. And all of them should be evaluated and adjusted as the particular requirements
of new technologies emerge.
It is clear that this body of rules is not adequate to the task of effectively promoting much
of more relevant technology. In addition to all of these provisions, another is needed to
complete the complement of policy tools. Paralleling patent protection, there is a
requirement for an Innovation Warrant, to protect the commitment to research,
development and commercialization until investors have earned profits amounting to a
prescribed multiple of the original investment. This provision could both ensure a fair
return and avoid the public payment of recompense in perpetuity.
The regulatory regimes are the other form of social rules which have a direct bearing on
innovations. Transportation, communication, energy, food and drugs, and building and
construction, to mention only some of the more obvious, are all regulated in ways that
affect the introduction of new technologies into these fields. With regulatory reform now
on the political agenda, it is essential to distinguish between burdensome paperwork
which can be usefully eliminated, and safety and equity rules which protect life, limb, and
legitimate livelihood. Regrettably, regulation to date has been, by and large, merely reactive;
"the regulation of technology at present is often largely a matter of responding
retrospectively to unexpected side-effects and dangers, rather than of making fine-tuning
adjustments in anticipation of a predictable difficulty.
A number of times it is seen that the arrangement for adequate regulation lag well behind
technological development, and too often are brought into operation only as a result of
accident, malpractice or serious damage of one kind or another to people or the
environment. Regulatory regimes should certainly assist the introduction of beneficial
technologies. But the burden of proof rests with the advocates. Technology assessment
and environmental impact analysis are now sufficiently developed that proactive regulation
is both possible and desirable.

125
Technology Management Messages
The announcements by public officials on the issues relating to technology can be
extremely influential in communicating on a whole range of social and economic issues.
Statements in the Legislature, news conferences, speeches at meetings, committee and
task-force reports, all can convey both mood and substance regarding the choice of. In
this regard technology policy is not an exception.
The articulation of goals on the level of national commitment to R&D can serve as a
guideline for both government agencies and the private sector. Meetings and conferences
can provide major public forums for policy-makers to exchange information amongst
themselves, and alert the public about trends and events of importance. Task forces can
take an in-depth look at the complex factors affecting technological change, so that a
better understanding is achieved on which to base future programs. From a complementary
perspective, messages from the electorate can feed back to public officials by way of
inquiries and commissions, and through opinion polls. This too can serve as a basis for
policy pronouncements in response to wider concerns, especially when adjustment to
technological change will require considerable co-operation from those affected.
It is government, which can take an active part in helping promote sales of technology-
intensive goods and services. Such promotion efforts as trade and technology fairs, the
trade commissioner service, and government-supported trade associations and
corporations, by increasing demand, can assist the support for, and utilization of on-going
innovation. Government representatives abroad are often in a unique position to acquire
knowledge about the social conditions, political climate and market prospects regarding
the countries to which they are posted. Such information can prove to be invaluable to
the efforts to increase sales to these countries, provided it is made available in a timely
and cogent manner, to those who could benefit from its use. Such contacts can in turn,
carry the message of what has to be done to sell, thereby facilitating a match between
supply and demand for our commodities abroad.
Governments can negotiate mutual tariff reductions on the one hand, or mutually limit
market access on the other. The legal framework can also assist or constrain the flows
of funds, information or commodities to the best opportunities abroad. And the negotiation
of counter-trade arrangements, whereby payment is received in other commodities rather
than in currency, can also require government involvement.
[Source: cypher@sympatico.ca ]

Check Your Progress

Write a study note on the need for multi-criteria considerations such as, social, environmental
and political.

5.6 LET US SUM UP

The choice of technology should be based on utility. Now a days, people spend so
much money on high-tech toys and on automobile-centered neighborhoods that they
have to work long hours and do not have time for our families and our own interests.
America has longer work hours than any other industrial nation, longer work hours
than had three or four decades ago. The organisations should use technologies that

126
save labor, but avoid the technological consumerism that makes them waste their time Technology Choice and
Evaluation
in useless getting and spending. Some choices of technology must be required by law,
such as limits on off-road vehicles, and others should be voluntary, such as reduction
of the time we spend watching television. Both political and personal choice of
technology will come when the policy makers finally realize how destructive their
failure to choose technologies has been.

Sometimes the policymakers have failed to choose technologies based on full

environmental cost, so their quality of product life has declined. In the coming century,
global warming may cause a drastic decline in our well being. Because we have failed
to choose technologies based on autonomy and quality, we spend most of our spare
time as passive consumers of entertainment, stultified by the mass media. We do not
even take the initiative needed to promote our own health; instead we consume drugs.
If we began to choose technology based on these four criteria, we would consume
less and have more free time for our families and our own interests. We would get rid
of environmental nuisances that degrade our quality of life, and of environmental threats
that endanger our future.

The people have been using technology indiscriminately for so long that their lives are
cluttered with useless and destructive technologies. We would be much better off if we
got them out of our way. Lest they should get carried away with the promise of progress
however, it would be wise to also consider the moral context of innovation. The scope
and level of innovation is in part collectively determined: the lower the culture ranks
economic goals, productivity, efficiency, technology, science, and the higher it ranks social
cohesion, stability, and religion, the lower the scope and level of innovation. Since the
promise of innovation is the benefits will outweigh costs, those who advocate innovation
have a responsibility to prove their claims on a case by case basis. People should not be
morally at liberty to strike any old bargain they can with each other about their respective
tights and duties.

5.7 KEY TERMS

Qualitative Approaches: Qualitative approaches include in-depth open-ended interviews
with groups or individuals, observations and the use of participatory methods, such as
focus group discussions.

Alternate Technology: The methods of analysing alternate technologies basically depend

on the technology strategy and business goals of the organisation concerned.

Feasibility Study: A feasibility study is a detailed analysis of a company and its operations
that is conducted in order to predict the results of a specific future course of action.

Technology Policy System: The Technology Policy System is meant to represent

conditions for the creation of new technology rather than subsequent commercialization
or diffusion.

Positive Feedback: After an innovation is commercialized or otherwise diffused amongst

outlets, the prospects for either a further generation of innovation, or the possible
modification of the existing innovation, depends on feedback from the wider society.
Positive feedback encourages further technological development.

127
Technology Management Negative Feedback: It is useful to have provisions for discouraging some types of, or
aspects of innovations, because the effects of particular technologies cannot automatically
be assumed to always be benign. This is the role of negative feedback.

5.8 TEST QUESTIONS

1. What do you understand by the concept of technology choice and evaluation?
2. Discuss the methods of analysing alternate technologies.
3. What are the different steps in techno- economic feasibility studies?
4. What is the importance of social and environmental considerations in the technology
choice?
5. How do political policymakers impact the choice of technology in a country?
6. What are the dos and don't in the steps of technology choice and evaluation?

5.9 SUGGESTED READINGS

Gerard H. Gaynor, Handbook of Technology Management, Mc-GrawHill.
Noori H & Radford R.W., Reading and cases in the Management of New Technology,
Englewood Cliffs, N.J. Prentice Hall, 1990.
Bowonder B. and Miyake T., Technological forecasting, Methodologies and Case
Studies.
www.sympatico.com
R.A. Burgelman and M.A. Maidque, Strategic Management of Technology and
Innovation, Irwin, Homewood, Illinois.

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LESSON

6
ANALYTIC HIERARCHY METHOD
CONTENTS
6.0 Aims and Objectives
6.1 Introduction
6.2 Analytic Hierarchy Method
6.3 Fuzzy Multi-Criteria Decision Making
6.4 Other Methods
6.5 Let Us Sum Up
6.6 Key Terms
6.7 Test Questions
6.8 Suggested Readings

6.0 AIMS AND OBJECTIVES

After studying this lesson, you will be able to understand:
1. The use of analytic hierarchy method in technology choice and evaluation process.
2. The concept of Fuzzy multi-criteria decision making.
3. The various other methods used in the decision making regarding technology choice.

6.1 INTRODUCTION
Effective technology, i.e., management automation tools, can help connect all the other
dimensions. Appropriate technology helps make processes easier to execute, facilitates
timely information sharing, and enables consistent coordination between elements and
layers of the organization. It does this through the following:
l Automation of manual tasks
l Reporting
l Analytics for decision making
l Integration between management systems
The simple addition of technology to automate existing processes leaves most of its
potential value untapped. The largest gains result from the optimization of processes,
organizational structures, and information flows. The complexity of managing the business
technology function and increasing demands of an ever-evolving business climate require
more information transparency and operational synchronization than basic computing
tasks can provide. The appropriate use of technology should not only ease the development
Technology Management and reporting of information needed to fuel management processes across the organization,
but also to achieve consistent horizontal and vertical management integration.

6.2 ANALYTIC HIERARCHY METHOD

Due to critical role of technology in new economy, existence technological gap between
developed and developing countries is required to be decreased or eliminated. So,
technology at developing countries must be created nationally or transferred from
technology owners. This study sought to submit a methodology for technology source
selection. So, the effective criteria for selection of a desired source have been extracted
from related papers (literature review). These criteria should be validated at local condition
and culture. For this purpose, the professional used the Delphi method. At this way,
related experts from universities, technology colleges and institutes have been invited.
Then the AHP method has been used to prioritize selected and validated criteria. This
process is completely applied for case study also, as alternatives.
Technology transfer (TT) is one option for a developing country to acquire newer
technology. The latest technology growth at new industrialized countries is highly depends
on TT from developed area. It is postulated that not every TT process can be expected
to success. One of the main parts of the TT process is technology source selection
which is required to be done well founded. The process of an evaluation of technology
source is even very useful for receiver. If this step is not followed, unsuitable source
may be selected and consequently all activities for technology acquisition will be lost and
TT will be failed. Therefore, the discussion here is focused on process for technology
source selection.
The second group are selected (from local industry area) for alternatives validation and
compare them together to identify their relative weight. The above process is as Delphi
method which the has been applied here for study. After these phases, the Analytical
Hierarchy Process (AHP) is used to prioritize selected criteria and alternatives as well.
This process is followed and completed by Expert Choice software which all calculations
are done completely by it, also.
The Analytical Hierarchy Process (AHP) is a decision-aiding method developed by
Saaty. It aims at quantifying relative priorities for a given set of alternatives on a ratio
scale, based on the judgment of the decision maker, and stresses the importance of the
intuitive judgments of a decision maker as well as the consistency of the comparison of
alternatives in the decision making process.
The Analytic Hierarchy Process (AHP) is a structured technique for dealing with complex
decisions. Rather than prescribing a correct decision, the AHP helps the decision
makers find the one that best suits their needs and their understanding of the problem.
Based on mathematics and psychology, it was developed by Thomas L. Saaty in the
1970s and has been extensively studied and refined since then. The AHP provides a
comprehensive and rational framework for structuring a decision problem, for representing
and quantifying its elements, for relating those elements to overall goals, and for evaluating
alternative solutions. It is used around the world in a wide variety of decision situations,
in fields such as government, business, industry, healthcare, and education.
Several firms supply computer software to assist in using the process.

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Users of the AHP first decompose their decision problem into a hierarchy of more easily Analytic Hierarchy Method
comprehended sub-problems, each of which can be analyzed independently. The elements
of the hierarchy can relate to any aspect of the decision problemtangible or intangible,
carefully measured or roughly estimated, well- or poorly-understoodanything at all
that applies to the decision at hand.
Once the hierarchy is built, the decision makers systematically evaluate its various elements
by comparing them to one another two at a time. In making the comparisons, the decision
makers can use concrete data about the elements, or they can use their judgments about
the elements relative meaning and importance. It is the essence of the AHP that human
judgments, and not just the underlying information, can be used in performing the
evaluations.
The AHP converts these evaluations to numerical values that can be processed and
compared over the entire range of the problem. A numerical weight or priority is derived
for each element of the hierarchy, allowing diverse and often incommensurable elements
to be compared to one another in a rational and consistent way. This capability distinguishes
the AHP from other decision making techniques.
In the final step of the process, numerical priorities are calculated for each of the decision
alternatives. These numbers represent the alternatives relative ability to achieve the
decision goal, so they allow a straightforward consideration of the various courses of
action.
6.2.1 Uses and Applications of AHP
While it can be used by individuals working on straightforward decisions, the Analytic
Hierarchy Process (AHP) is most useful where teams of people are working on complex
problems, especially those with high stakes, involving human perceptions and judgments,
whose resolutions have long-term repercussions. It has unique advantages when
important elements of the decision are difficult to quantify or compare, or where
communication among team members is impeded by their different specializations,
terminologies, or perspectives.
Decision situations to which the AHP can be applied include:
l Choice: The selection of one alternative from a given set of alternatives, usually
where there are multiple decision criteria involved.
l Ranking: Putting a set of alternatives in order from most to least desirable
l Prioritization: Determining the relative merit of members of a set of alternatives,
as opposed to selecting a single one or merely ranking them
l Resource allocation: Apportioning resources among a set of alternatives
l Benchmarking: Comparing the processes in ones own organization with those of
other best-of-breed organizations
l Quality management: Dealing with the multidimensional aspects of quality and
quality improvement
The applications of AHP to complex decision situations have numbered in the thousands,
and have produced extensive results in problems involving planning, resource allocation,

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Technology Management priority setting, and selection among alternatives. Other areas have included forecasting,
total quality management, business process re-engineering, quality function deployment,
and the Balanced Scorecard. Many AHP applications are never reported to the world at
large, because they take place at high levels of large organizations where security and
privacy considerations prohibit their disclosure. But some uses of AHP are discussed in
the literature. Recently these have included:
l Deciding how best to reduce the impact of global climate change (Fondazione
Eni Enrico Mattei)
l Quantifying the overall quality of software systems (Microsoft Corporation)
l Selecting university faculty (Bloomsburg University of Pennsylvania)
l Deciding where to locate offshore manufacturing plants (University of Cambridge)
l Assessing risk in operating cross-country petroleum pipelines (American Society
of Civil Engineers)
l Deciding how best to manage U.S. watersheds (U.S. Department of Agriculture)
AHP is sometimes used in designing highly specific procedures for particular situations,
such as the rating of buildings by historic significance. It was recently applied to a project
that uses video footage to assess the condition of highways in Virginia. Highway engineers
first used it to determine the optimum scope of the project, then to justify its budget to
lawmakers.
Using AHP in Education and Scholarly Research
Though using the Analytic Hierarchy Process requires no specialized academic training,
it is considered an important subject in many institutions of higher learning, including
schools of engineering and graduate schools of business. It is a particularly important
subject in the quality field, and is taught in many specialized courses including Six Sigma,
Lean Six Sigma, and QFD.
Nearly a hundred Chinese universities offer courses in AHP, and many doctoral students
choose AHP as the subject of their research and dissertations. Over 900 papers have
been published on the subject in China, and there is at least one Chinese scholarly journal
devoted exclusively to AHP.
The International Symposium on the Analytic Hierarchy Process (ISAHP) holds biennial
meetings of academics and practitioners interested in the field. At its 2007 meeting in
Valparaiso, Chile, over 90 papers were presented from 19 countries, including the U.S.,
Germany, Japan, Chile, Malaysia, and Nepal. Topics covered ranged from Establishing
Payment Standards for Surgical Specialists, to Strategic Technology Roadmapping,
to Infrastructure Reconstruction in Devastated Countries.
6.2.2 The Procedure for using the AHP
A typical device for entering judgments in an AHP group decision making session.
As can be seen in the material that follows, using the AHP involves the mathematical
synthesis of numerous judgments about the decision problem at hand. It is not uncommon
for these judgments to number in the dozens or even the hundreds. While the math can
be done by hand or with a calculator, it is far more common to use one of several
computerized methods for entering and synthesizing the judgments. The simplest of these
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involve standard spreadsheet software, while the most complex use custom software, Analytic Hierarchy Method
often augmented by special devices for acquiring the judgments of decision makers
gathered in a meeting room.

Figure 6.1: Using the Analytic Hierarchy Process

The procedure for using the AHP can be summarized as:
1. Model the problem as a hierarchy containing the decision goal, the alternatives for
reaching it, and the criteria for evaluating the alternatives.
2. Establish priorities among the elements of the hierarchy by making a series of
judgments based on pairwise comparisons of the elements. For example, when
comparing potential real-estate purchases, the investors might say they prefer
location over price and price over timing.
3. Synthesize these judgments to yield a set of overall priorities for the hierarchy. This
would combine the investors judgments about location, price and timing for properties
A, B, C, and D into overall priorities for each property.
4. Check the consistency of the judgments.
5. Come to a final decision based on the results of this process.
These steps are more fully described below.
1. Model the Problem as a Hierarchy
The first step in the Analytic Hierarchy Process is to model the problem as a hierarchy.
In doing this, participants explore the aspects of the problem at levels from general to
detailed, then express it in the multileveled way that the AHP requires. As they work to
build the hierarchy, they increase their understanding of the problem, of its context, and
of each others thoughts and feelings about both.
Hierarchies Defined
A hierarchy is a system of ranking and organizing people, things, ideas, etc., where each
element of the system, except for the top one, is subordinate to one or more other
elements. Diagrams of hierarchies are often shaped roughly like pyramids, but other
than having a single element at the top, there is nothing necessarily pyramid-shaped
about a hierarchy.
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Technology Management Human organizations are often structured as hierarchies, where the hierarchical system
is used for assigning responsibilities, exercising leadership, and facilitating communication.
Familiar hierarchies of things include a desktop computers tower unit at the top,
with its subordinate monitor, keyboard, and mouse below.
In the world of ideas, we use hierarchies to help us acquire detailed knowledge of complex
reality: we structure the reality into its constituent parts, and these in turn into their own
constituent parts, proceeding down the hierarchy as many levels as we care to. At each
step, we focus on understanding a single component of the whole, temporarily disregarding
the other components at this and all other levels. As we go through this process, we
increase our global understanding of whatever complex reality we are studying.
Think of the hierarchy that medical students use while learning anatomythey separately
consider the musculoskeletal system (including parts and subparts like the hand and its
constituent muscles and bones), the circulatory system (and its many levels and branches),
the nervous system (and its numerous components and subsystems), etc., until theyve
covered all the systems and the important subdivisions of each. Advanced students
continue the subdivision all the way to the level of the cell or molecule. In the end, the
students understand the big picture and a considerable number of its details. Not only
that, but they understand the relation of the individual parts to the whole. By working
hierarchically, theyve gained a comprehensive understanding of anatomy.
Similarly, when we approach a complex decision problem, we can use a hierarchy to
integrate large amounts of information into our understanding of the situation. As we build
this information structure, we form a better and better picture of the problem as a whole.
AHP Hierarchies Explained
An AHP hierarchy is a structured means of modeling the problem at hand. It consists of
an overall goal, a group of options or alternatives for reaching the goal, and a group of
factors or criteria that relate the alternatives to the goal. The criteria can be further
broken down into subcriteria, sub-subcriteria, and so on, in as many levels as the problem
requires.
The hierarchy can be visualized as a diagram like the one below, with the goal at the top,
the alternatives at the bottom, and the criteria in the middle. There are useful terms for
describing the parts of such diagrams: Each box is called a node. The boxes descending
from any node are called its children. The node from which a child node descends is
called its parent. Groups of related children are called comparison groups. The parents
of an Alternative, which are often from different comparison groups, are called its covering
criteria.
Applying these definitions to the diagram, the four Criteria are children of the Goal, and
the Goal is the parent of each of the four Criteria. Each Alternative is a child of its four
covering criteria. There are two comparison groups: a group of four Criteria and a group
of three Alternatives.
A simple AHP hierarchy: To avoid clutter in AHP diagrams, the lines connecting
alternatives and their covering criteria are often omitted or reduced in number. Regardless
of any such simplifications in the diagram, in the actual hierarchy each alternative is
connected to every one of its covering criteria.
The design of any AHP hierarchy will depend not only on the nature of the problem at
hand, but also on the knowledge, judgments, values, opinions, needs, wants, etc. of the
134 participants in the process. Published descriptions of AHP applications often include
diagrams and descriptions of their hierarchies. These have been collected and reprinted Analytic Hierarchy Method
in at least one book. You can see some more complex AHP hierarchies HERE.
As the AHP proceeds through its other steps, the hierarchy can be changed to
accommodate newly-thought-of criteria or criteria not originally considered to be important;
alternatives can also be added, deleted, or changed.
2. Establish Priorities
Once the hierarchy has been constructed, the participants use AHP to establish priorities
for all its nodes. In doing so, information is elicited from the participants and processed
mathematically. This section explains priorities, shows how they are established, and
provides a simple example.
Priorities Defined and Explained
Priorities are numbers associated with the nodes of an AHP hierarchy. They represent
the relative weights of the nodes in any group.
Like probabilities, priorities are absolute numbers between zero and one, without units or
dimensions. A node with priority .200 has twice the weight in reaching the goal as one
with priority .100, ten times the weight of one with priority .020, and so forth. Depending
on the problem at hand, weight can refer to importance, or preference, or likelihood, or
whatever factor is being considered by the decision makers.
Priorities are distributed over a hierarchy according to its architecture, and their values
depend on the information entered by users of the process. Priorities of the Goal, the
Criteria, and the Alternatives are intimately related, but need to be considered separately.
By definition, the priority of the Goal is 1.000. The priorities of the Alternatives always
add up to 1.000. Things can become complicated with multiple levels of Criteria, but if
there is only one level, their priorities also add to 1.000. All this is illustrated by the
priorities in the example below.
Simple AHP hierarchy with associated default priorities: Observe that the priorities
on each level of the examplethe Goal, the Criteria, and the Alternativesall add up to
1.000.
The priorities shown are those that exist before any information has been entered about
weights of the criteria or alternatives, so the priorities within each level are all equal.
They are called the hierarchys default priorities. If you understand what has been said
so far, you will see that if a fifth Criterion were added to this hierarchy, the default
priority for each Criterion would be .200. If there were only two Alternatives, each
would have a default priority of .500.
Two additional concepts apply when a hierarchy has more than one level of criteria:
local priorities and global priorities. Consider the hierarchy shown below, which has
several Subcriteria under each Criterion.
A more complex AHP hierarchy, with local and global default priorities: In the
interest of clarity, the decision alternatives do not appear in the diagram.
The local priorities, shown in gray, represent the relative weights of the nodes within a
group of siblings with respect to their parent. You can easily see that the local priorities
of each group of Criteria and their sibling Subcriteria add up to 1.000. The global priorities,
shown in black, are obtained by multiplying the local priorities of the siblings by their parents
global priority. The global priorities for all the subcriteria in the level add up to 1.000. 135
Technology Management The rule is this: Within a hierarchy, the global priorities of child nodes always add up to
the global priority of their parent. Within a group of children, the local priorities add up to
1.000.
So far, we have looked only at default priorities. As the Analytical Hierarchy Process
moves forward, the priorities will change from their default values as the decision makers
input information about the importance of the various nodes. They do this by making a
series of pairwise comparisons.
A Simple Example
In an AHP hierarchy for the simple case of buying a vehicle, the goal might be to choose
the best car for the Jones family. The family might decide to consider cost, safety, style,
and capacity as the criteria for making their decision. They might subdivide the cost
criterion into purchase price, fuel costs, maintenance costs, and resale value. They might
separate Capacity into cargo capacity and passenger capacity. The family, which for
personal reasons always buys Hondas, might decide to consider as alternatives the Accord
Sedan, Accord Hybrid Sedan, Pilot SUV, CR-V SUV, Element SUV, and Odyssey Minivan.
The Jones hierarchy could be diagrammed as shown below:
AHP hierarchy for the Jones family car buying decision: The Goal is green, the
Criteria and Subcriteria are yellow, and the Alternatives are pink. All the alternatives (six
different models of Hondas) are shown below the lowest level of each criterion. Later in
the process, each alternative (each model) will be rated with respect to the criterion or
subcriterion directly above it.
Alternatives for the Jones family car buying decision: To save space in the diagrams,
we have represented them as stacks of papers.
As they build their hierarchy, the Joneses should investigate the values or measurements of
the different elements that make it up. If there are published safety ratings, for example, or
manufacturers specs for cargo capacity, they should be gathered as part of the process.
This information will be needed later, when the criteria and alternatives are evaluated.
Note that the measurements for some criteria, such as purchase price, can be stated
with absolute certainty. Others, such as resale value, must be estimated, so must be
stated with somewhat less confidence. Still others, such as style, are really in the eye of
the beholder and are hard to state quantitatively at all. The AHP can accommodate all
these types of criteria, even when they are present in a single problem.
Also note that the structure of the vehicle-buying hierarchy might be different for other
families (ones who dont limit themselves to Hondas, or who care nothing about style, or
who drive less than 5,000 miles (8,000 km) a year, etc.). It would definitely be different
for a 25-year-old playboy who doesnt care how much his cars cost, knows he will never
wreck one, and is intensely interested in speed, handling, and the numerous aspects of
style.
3. Pairwise Comparisons
To incorporate their judgments about the various elements in the hierarchy, decision
makers compare the elements two by two. How they are compared will be shown later
on. Right now, lets see which items are compared. Our example will begin with the four
Criteria in the second row of the hierarchy, though we could begin elsewhere if we
wanted to. The Criteria will be compared as to how important they are to the decision
136 makers, with respect to the Goal.
Each pair of items in this row will be compared; there are a total of six pairs (Cost/ Analytic Hierarchy Method
Safety, Cost/Style, Cost/Capacity, Safety/Style, Safety/Capacity, and Style/Capacity).
You can use the diagram below to see these pairs more clearly.
AHP hierarchy for the Jones family car buying decision: Can you see the six possible
comparisons in the Criteria row?
Alternatives for the Jones family car buying decision: These six models are pairwise
compared with each of the covering criteria. First do them with respect to Purchase
Price, then with respect to Fuel Costs, and so on until the end, with Passenger Capacity.
In the next row, there is a group of four subcriteria under the Cost criterion, and a group
of two subcriteria under the Capacity criterion.
In the Cost subgroup, each pair of subcriteria will be compared regarding their importance
with respect to the Cost criterion. (As always, their importance is judged by the decision
makers.) Once again, there are six pairs to compare (Purchase Price/Fuel Costs, Purchase
Price/Maintenance Costs, Purchase Price/Resale Value, Fuel Costs/Maintenance Costs,
Fuel Costs/Resale Value, and Maintenance Costs/Resale Value).
In the Capacity subgroup, there is only one pair of subcriteria. They are compared as to
how important they are with respect to the Capacity criterion.
Things change a bit when we get to the Alternatives row. Here, the cars in each group
of alternatives are compared pair-by-pair with respect to the covering criterion of the
group, which is the node directly above them in the hierarchy. What we are doing here is
evaluating the models under consideration with respect to Purchase Price, then with
respect to Fuel Costs, then Maintenance Costs, Resale Value, Safety, Style, Cargo
Capacity, and Passenger Capacity. Because there are six cars in the group of alternatives,
there will be fifteen comparisons for each of the eight covering criteria.
When the pairwise comparisons are as numerous as those in our example, specialized
AHP software can help in making them quickly and efficiently. We will assume that the
Jones family has access to such software, and that it allows the opinions of various
family members to be combined into an overall opinion for the group.
The familys first pairwise comparison is Cost vs. Safety. They need to decide which of
these is more important in choosing the best car for them all. This can be a difficult
decision. On the one hand, You cant put a price on safety. Nothing is more important
than the life of a family member. But on the other hand, the family has a limited amount
of money to spend, no member has ever had a major accident, and Hondas are known as
very safe cars. In spite of the difficulty in comparing money to potential injury or death,
the Jones family needs to determine its judgment about Cost vs. Safety in the car they
are about to buy. They have to say which criterion is more important to them in reaching
their goal, and how much more important it is (to them) than the other one. In making this
judgment, they should remember that since the AHP is a flexible process, they can
change their judgment later on.
You can imagine that there might be heated family discussion about Cost vs. Safety. It is
the nature of the AHP to promote focused discussions about difficult aspects of the
decisions to which it is applied. Such discussions encourage the communication of
differences, which in turn encourages cooperation, compromise, and agreement among
the members of the group.
Lets say that the family decides that in this case, Cost is moderately more important to
them than Safety. The software requires them to express this judgment by entering a 137
Technology Management number. They can use this table to determine it; in this case they would enter a 3 in favor
of Cost:
Continuing our example, lets say they make the following judgments about all the
comparisons of criteria, entering them into the software as numbers gotten from the
table: as stated, Cost is moderately important (3) over Safety; also, Cost is very strongly
important (7) over Style, and is moderately important (3) over Capacity. Safety is extremely
more important (9) than Style, and of equal importance (1) to Capacity. Capacity is very
strongly important (7) over Style.
We could show those judgments like this:
Judgments made by the Jones family and entered into the AHP software: Throughout
this article, the familys judgments are shown with a green background. The orange and
yellow colors show which alternative predominates.
The AHP software uses mathematical calculations to convert these judgments to priorities
for each of the four criteria. The details of the calculations are beyond the scope of this
article, but are readily available elsewh The software also calculates a consistency
ratio that expresses the internal consistency of the judgments that have been entered.
In this case the judgments showed acceptable consistency, and the software used the
familys inputs to assign these new priorities to the criteria:
AHP hierarchy for the Jones family car buying decision: The Criteria have been
pairwise compared, and their new priorities are shown. (Before the comparisons, each
Criterion had a default priority of 0.250.) Note that the priorities still total 1.000, and the
priorities for the subcriteria have not changed. The family has said that Cost is quite
important to them, Style is relatively unimportant, and Safety and Capacity are each
roughly half as important as Cost, with Safety having a slight edge over Capacity. Family
members can look at these priorities and see how they feel about them. If they are
uncomfortable about something, they can redo their pairwise comparisons.
You can duplicate this analysis at this online demonstration site; use the Line by Line
Method by clicking its button, and dont forget to enter a negative number if the Criterion
on the left is less important than the one on the right. If you are having trouble, click here
for help. IMPORTANT: The demo site is designed for convenience, not accuracy.
The priorities it returns may differ significantly from those returned by rigorous
AHP calculations. Nevertheless, it is useful in showing the mechanics of the pairwise
comparison process. Once you are comfortable with the demo, you can experiment by
entering your own judgments for the criteria in question. If your judgments are different
from those of the Jones family, your priorities will possibly be quite different from theirs.
Look again at the above diagram and note that the Subcriteria still show their default
priorities. This is because the decision makers havent entered any judgments about
them. So next on the familys agenda is to pairwise compare the four Subcriteria under
Cost, then the two Subcriteria under Capacity. They will compare them following the
same pattern as they did for the Criteria.
We could imagine the result of their comparisons yielding the priorities shown here:
AHP hierarchy for the Jones family car buying decision, showing LOCAL priorities:
The items in each group of Subcriteria have been pairwise compared, and their resulting
priorities are shown. The priorities in each group total 1.000. These are called local
priorities.
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At this point, all the comparisons for Criteria and Subcriteria have been made, and the AHP Analytic Hierarchy Method
software has derived the local priorities for each group at each level. One more step can
be made here. We know how much the priority of each Criterion contributes to the priority
of the Goal. Since we also know how much the priority of each Subcriterion contributes to
the priority of its parent, we (and the AHP software) can calculate the global priority of
each Subcriterion. That will show us the priority of each Subcriterion with respect to the
Goal. The global priorities throughout the hierarchy will add up to 1.000, like this:
AHP hierarchy for the Jones family car buying decision, showing GLOBAL
priorities: The priority of the Goal is 1.000, as always. The global priorities for the
Criteria and Subcriteria also add up to 1.000. Each item with a red global priority contributes
that amount to the priority of the Goal.
Based on the judgments entered by the family, the AHP has derived the priorities for the
factors against which each of the six cars will be compared. They are shown, from
highest to lowest, in the table below. Notice that Cost and Capacity will not be evaluated
directly, but that each of their Subcriteria will be evaluated on its own:
Table 6.1: Priorities for Factors

Factor Priority
Purchase Price 0.246
Safety 0.237
Passenger Capacity 0.181
Fuel Costs 0.127
Resale Value 0.081
Maintenance Costs 0.050
Style 0.042
Cargo Capacity 0.036

The next step is to evaluate each of the cars with respect to these factors. In the technical
language of AHP, we will pairwise compare the alternatives with respect to their covering
criteria.
4. Comparing Alternatives
The family can evaluate alternatives against their covering criteria in any order they
choose. In this case, they choose the order of decreasing priority of the covering criteria.
That means Purchase Price first.
(i) Purchase Price
The family has established a budget of $25,000 for buying the new car, but they are
willing to consider alternatives whose price exceeds their budget. To refresh your mind,
here are the six cars they are consideringin AHP terminology, the six alternatives
along with their purchase prices:
The Jones Familys alternatives, with purchase prices.
Knowing that they will have a lot of pairwise comparisons to make, the family prepared
this worksheet to help them. It shows comparative information about the price and budget
status of each pair of cars:
The Jones familys purchase price worksheet: Now, what do they do?
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Technology Management First they might compare the purchase price of the Accord Sedan to that of the Accord
Hybrid. If they stick purely to arithmetic, they could say that the Sedan is favored by 1.5,
since the Hybrids price is about 1.5 times that of the Sedan, and a lower price is better.
They could follow that pattern through all 15 of the comparisons, and it would give a
mathematically consistent set of comparisons.
But merely entering the numbers wouldnt take into account things like the $25,000
budget, or the value to the family of saving, say, $5,000 vs. $1,000 on a purchase. Things
like that can be highly important in making decisions, and their importance can vary
greatly with the situation and the people involved. Some families might never want to
exceed their budget. Others might be willing to exceed it by a few dollars or a few
percent, but very unwilling to go further. Still others might not care much if they spend
double their budget on the car. Because the AHP allows decision makers to enter their
judgments about the data, rather than just the data themselves, it can deal with all these
situations and more.
Lets say that the Jones family is willing to exceed their budget by up to $1,000, but
anything more is unacceptable. They never say never, howeverbudget-busting cars
will score as low as possible on purchase price, but wont be removed from the list of
alternatives. And for cars priced under budget, a $1,000 difference in price doesnt
matter much to the Joneses, but a $5,000 difference is strongly important, and a $10,000
difference is extreme. They might enter the following intensities into the AHP software
(throughout this example, the judgments of decision makers are shaded in green):
Purchase price judgments entered by the Jones family, with the rationale for their
choices. From the Fundamental Scale, 1 expresses that A and B are equally preferred, 3
that A is moderately preferred to B, 5 that A is strongly preferred, 7 that A is very
strongly preferred, and 9 that A is extremely preferred to B. Intensities 2, 4, 6, and 8
express intermediate values.
You can follow the familys thinking by looking at the rationale for each judgment.
Whenever a car that is under budget is compared with one that is over budget by more
than $1,000, the former is extremely preferred. For cars under budget, a $1,000 less
expensive car is slightly preferred, a $5,000 one is strongly preferred, and a $6,000 one
is even more strongly preferred. When both cars are well over budget (comparison #6),
they are equally preferred, which is to say they are equally undesirable. Because budget
status and absolute price difference are enough to make each comparison, the ratio of
prices never enters into the judgments.
When the judgments shown above are entered, the AHP software returns the following
priorities for the six alternatives with respect to Purchase Price:
Table 6.2: Priorities Regarding Purchase Price

Alternative Local Priority Global Priority

Element 0.362 0.089
Accord 0.242 0.060
CR-V 0.242 0.060
Odyssey 0.100 0.025
Pilot 0.027 0.007
Accord Hybrid 0.027 0.007
TOTAL 1.000 0.246
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The local priorities show how much the purchase price of each model contributes to the Analytic Hierarchy Method
subcriterion of Purchase Price. The global priorities show how much the purchase price
of each model contributes to the overall goal of choosing the best car for the Jones
family.
(ii) Safety
Comparing the alternatives on the basis of Safety is much less objective than comparing
them on Purchase Price. Purchase prices are measured in dollars and can be determined
to the penny. People can easily agree on the meaning of a $20,360 purchase price, and
can rationally compare it to all the other prices, using methods and calculations that are
understood and accepted by all.
But safety eludes our efforts even to define it in an objective way. Not only that, but the
objective measurements of safety are limited and not readily comparable from car to car.
The government conducts objective crash tests, but they are incomplete measures of the
safety of a given car. Also, the crash tests only compare the members of a single class
of cars, such as Midsize Cars or Minivans. Is a midsize car with 100% 5-star safety
ratings equally as safe as a minivan with the same ratings? Its not exactly clear. And
when evaluating minivans that have 5-star ratings in all categories but one, who can say
if the one with four stars for Frontal Impact, Drivers Side is safer than the one whose
four stars are in Side Impact, Rear Occupant? Theres really no way to tell.
In spite of these difficulties, the AHP provides a rational way to evaluate the relative
safety of different cars.
Lets assume that the Jones family has researched the Safety of the six Hondas they are
considering. They will have found that all of them are among the safest cars on the road.
All six are Top Safety Picks of the IIHS safety standards organization. All of them do
very well in the crash testing programs of the National Highway Traffic Safety
Administration. But there are differences between them, and the family wants to factor
the differences into their decision. Your car can never be too safe.
The worksheet below includes the data that the family has decided to evaluate. They
believe that a heavier car is a safer car, so theyve documented the curb weights of their
alternatives. They have investigated the results of government crash tests, and theyve
summarized the results on the worksheet:
Safety data to be evaluated by the Jones family. Curb Weight is from manufacturers
literature. Crash Ratings are from NHTSA and are given for various classes of vehicle.
For each class, they include Frontal Impact, Drivers Side; Frontal Impact, Passengers
Side; Side Impact, Front Occupant; Side Impact, Rear Occupant; and Rollover Rating.
Ratings are from one to five stars, with five stars being the best.
The family will consider everything in the worksheet as they compare their alternatives.
They are not safety experts, but they can apply their life experience to making decisions
about the safety ratings. They all feel safer when driving a car that is significantly heavier
than another one. One family member has seen two gruesome rollover accidents, and is
terrified of a vehicle rolling over with her inside. She insists that the family car has the
highest possible Rollover Rating.
Here are the weights that the Jones family enters for the alternatives regarding Safety
(throughout this example, orange shading is used for judgments where A is favored;
yellow shading is used for B):
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Technology Management Safety judgments entered by the Jones family, with the intensity and rationale for
each. From the Fundamental Scale, 1 expresses that A and B are equally preferred, 3
that the better of the pair is moderately preferred to the worse, 5 that the better is
strongly preferred, 7 that the better is very strongly preferred, and 9 that the better is
extremely preferred to the worse. Intensities 2, 4, 6, and 8 express intermediate values.
When the judgments shown above are entered, the AHP software returns the following
priorities for the six alternatives with respect to Safety:
Table 6.3: Priorities Regarding Safety

Alternative Local Priority Global Priority

Odyssey 0.424 0.100
Accord 0.215 0.051
Accord Hybrid 0.215 0.051
Pilot 0.083 0.020
CR-V 0.038 0.009
Element 0.025 0.006
TOTAL 1.000 0.237

The local priorities show how much the safety of each model contributes to the Criterion
of Safety. The global priorities show how much the Safety of each model contributes to
the overall goal of choosing the best car for the Jones family.
(iii) Passenger Capacity
This characteristic is easy to evaluate. The alternatives can carry either four or five or
eight passengers. Here are the figures:
Passenger Capacity of the Jones familys alternatives.
The family has decided that four is barely enough, five is perfect for their needs, and
eight is just a little bit better than five. Here are their judgments:
Passenger Capacity judgments entered by the Jones family: The rationale is that
four passengers is barely enough, five is perfect for their needs, and eight is just a little
bit better than five.
When the judgments shown above are entered, the AHP software returns the following
priorities for the six alternatives with respect to Passenger Capacity:
Table 6.4: Priorities Regarding Passenger Capacity

Alternative Local Priority Global Priority

Pilot 0.273 0.049
Odyssey 0.273 0.049
Accord 0.136 0.025
Accord Hybrid 0.136 0.025
CR-V 0.136 0.025
Element 0.046 0.008
TOTAL 1.000 0.181

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The local priorities show how much the passenger capacity of each model contributes to Analytic Hierarchy Method
the Subcriterion of Passenger Capacity. The global priorities show how much the passenger
capacity of each model contributes to the overall goal of choosing the best car for the
Jones family.
(iv) Fuel Costs
After careful consideration, the Jones family believes that no matter which car they buy,
they will drive it the same number of miles per year. In other words, there is nothing
about any of the alternatives, including the price of fuel or the cars fuel consumption per
mile, that would cause it to be driven more or fewer miles than any other alternative.
They also believe that the government MPG rating is an accurate basis on which to
compare the fuel consumption of the cars. Here is a worksheet showing the government
MPG ratings of the Jones family alternatives:
Fuel consumption figures for the Jones familys alternatives.
They believe, therefore, that the fuel cost of any alternative vs. any other depends
exclusively on the MPG ratings of the two cars. So the pairwise judgments they enter
for any two cars will be inversely proportional to their MPG ratings. In other words, if
car A has exactly twice the MPG rating of car B, the Fuel Cost for car B will be exactly
twice that of car A. This table shows the judgments they will enter for all the comparisons:
Fuel Cost judgments entered by the Jones family: Judgments are inversely proportional
to the MPG ratings of the cars being compared.
When the judgments shown above are entered, the AHP software returns the following
priorities for the six alternatives with respect to Fuel Cost:
Table 6.5: Priorities Regarding Fuel Cost

Alternative Local Priority Global Priority

Accord Hybrid 0.212 0.027
Accord 0.188 0.024
CR-V 0.160 0.020
Odyssey 0.156 0.020
Element 0.151 0.019
Pilot 0.133 0.017
TOTAL 1.000 0.127

The local priorities show how much the fuel cost of each model contributes to the
subcriterion of Fuel Costs. The global priorities show how much the fuel cost of each
model contributes to the overall goal of choosing the best car for the Jones family.
(v) Resale Value
When the family researched Resale Value, they learned that lending institutions keep
statistics on the market value of different models after various time periods. These
estimated residual values are used for leasing, and are typically based on a limit of
12,000 miles (19,000 km) driven per year. Actual residual values depend on the condition
of the car, and can vary with market conditions.

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Technology Management The Joneses are going to buy their car, not lease it, and they expect to drive it more than
12,000 miles per year, but they agree among themselves that the leasing figures are a
good basis on which to compare the alternatives under consideration. Their bank gave
them this table showing the residual value of each alternative after four years and
48,000 miles (77,000 km):
Four-year residual values: A value of 0.52 means that this model is worth 52% of its
original price.
As they look at the table of residual values, they see that the residual value of a CR-V is
25% higher than that of a Pilot (0.55 is 125% of 0.44). They reason that such a greatly
higher residual value is an indication of a better or more desirable car, so they want to
place a premium on cars with relatively high residual value. After some thought and
discussion, they decide that, when comparing residual values, they want to look at the
higher one as a percentage of the lower, and assign their intensities on that basis. Where
one model has a residual value that is less than 105% of another, they consider the
residual values as equal for all practical purposes. Where one model has a residual value
that is 125% of the residual value of another, they consider the former model as quite
strongly more important, desirable, valuable, etc., as indicated by its much higher resale
value. With a bit more thought and discussion, they decide to make their judgments on
this basis:
The Jones rationale for comparing residual values: It is based on the higher residual
value as a percentage of the lower one.
They realize that not every family would do it this way, but this way seems best for them.
This table shows the judgments they will enter for their Resale Value comparisons:
Resale Value comparisons entered by the Jones family: They are based on the
rationale shown above.
When the judgments shown above are entered, the AHP software returns the following
priorities for the six alternatives with respect to Resale Value:
Table 6.6: Priorities Regarding Resale Value

Alternative Local Priority Global Priority

CR-V 0.415 0.034
Accord 0.225 0.018
Element 0.105 0.009
Odyssey 0.105 0.009
Accord Hybrid 0.095 0.008
Pilot 0.055 0.004
TOTAL 1.000 0.081

The local priorities show how much the resale value of each model contributes to the
Subcriterion of Resale Value. The global priorities show how much the resale value of
each model contributes to the overall goal of choosing the best car for the Jones family.
(vi) Maintenance Costs
The Jones family researched maintenance costs for the cars under consideration, but
they didnt find any hard figures. The closest they got was Consumer Reports magazine,
144
which publishes 17 separate maintenance ratings for every car on the market. Their
Hondas ranked very well, with all ratings Much Better Than Average, except for a Analytic Hierarchy Method
few on the Pilot and Odyssey. The Pilot got Better Than Average for its audio system
and the user rating, and Average for body integrity. The Odyssey got Better Than
Average for body hardware and power equipment, and Average for brakes, body
integrity, and user rating.
The Joneses also asked their favorite mechanic to evaluate the maintenance costs for
their six cars. Using tire prices and mileage estimates, he came up with figures for tire
costs over 60,000 miles (97,000 km) of driving. He didnt have figures for brake costs,
but he said theyd be about twice as much for the SUVs and minivans as they would for
the sedans. He also cautioned them that the battery in the Accord Hybrid was an expensive
repair item, and that the engine placement on the Odyssey made it a more expensive car
to work on.
The family created this worksheet to keep track of all their information about maintenance
costs:
Jones family worksheet for Maintenance Costs: Plus signs indicate good maintenance
history; the more plus signs, the lower the maintenance costs.
Even though every column on the worksheet contains a different type of information, the
Joneses can use it to make reasonable, rational judgments about Maintenance Costs.
Here are the judgments they will enter:
Maintenance Cost judgments entered by the Jones family: From the Fundamental
Scale, 1 means that A and B are equally preferred, 3 that A is moderately preferred, and
5 that A is strongly preferred. Intermediate numbers express intermediate preferences.
When the judgments shown above are entered, the AHP software returns the following
priorities for the six alternatives with respect to Maintenance Costs:
Table 6.7: Priorities Regarding Maintenance Costs

Alternative Local Priority Global Priority

Accord 0.357 0.018
Accord Hybrid 0.312 0.016
CR-V 0.100 0.005
Element 0.089 0.004
Pilot 0.084 0.004
Odyssey 0.058 0.003
TOTAL 1.000 0.050

The local priorities show how much the projected maintenance cost of each model
contributes to the subcriterion of Maintenance Costs. The global priorities show how
much the maintenance cost of each model contributes to the overall goal of choosing the
best car for the Jones family.
(vii) Style
The family decided that Style is important to them, but how can they determine the
style of each of the six alternatives? Style is a pretty subjective conceptit can
truly be said that style is in the eye of the beholder. Yet through the method of pairwise
comparison, the AHP gives the Jones family a way to evaluate the style of the cars
they are considering. 145
Technology Management Hondas web site provides photos of each of the alternatives. It also has videos,
commercials, rotatable 360 views, color chips, and more, all available to help family
members evaluate the Style of each car. The family can compare their alternatives two-
by-two on Style, using the tools on the web site to help them make their judgments. They
did just that, and here is the record of their judgments:
Style judgments entered by the Jones family: The family looked at each pair of cars
as shown in detail on a web site, decided which of the two they preferred, then entered
the intensity of their preference according to the Fundamental Scale.
When the judgments shown above are entered, the AHP software returns the following
local priorities for the six alternatives with respect to Style:
The local priorities show how much the style of each model contributes to the Style
Criterion. The global priorities show how much the Style of each model contributes to
the overall goal of choosing the best car for the Jones family.
Table 6.8: Priorities Regarding Style

Alternative Local Priority Global Priority

Accord 0.346 0.015
Accord Hybrid 0.346 0.015
CR-V 0.160 0.007
Odyssey 0.078 0.003
Pilot 0.045 0.002
Element 0.025 0.001
TOTAL 1.000 0.042

(viii) Cargo Capacity

The Cargo Capacity of each alternative, measured in cubic feet, is listed in the
manufacturers specifications for each vehicle. The Joneses dont really know how it is
calculated, but they trust that its a good indication of how much cargo can be packed
into a vehicle. This worksheet shows the cargo capacities of the Jones alternatives:
Cargo Capacity of the Jones alternatives.
Cargo capacities for the alternatives vary from 14 to 148 cubic feet (4.2 m3). If they
wanted to, the Jones family could enter these capacities directly into the AHP software.
But that would mean that, when considering Cargo Capacity, a car with 148 cu ft (4.2 m3).
of it would be over ten times as desirable as one with only 14. Given the cars use as a
family vehicle, that doesnt seem quite right. So the family looks at the available capacities
and determines that a 14 cu ft (0.40 m3). trunk is perfectly fine for their needs, that
something about five times larger is slightly better, and that something about ten times
larger is moderately so. These judgments correspond to values of 1, 2, and 3 on the
AHPs Fundamental Scale.
Here are the judgments they would enter into the AHP software:
Cargo Capacity judgments entered by the Jones family: The rationale is that 14 cubic
feet (0.40 m3) is totally satisfactory, five times that much (70 cu. ft.) is slightly better, and
ten times that much (140 cu. ft.) is moderately better than 14.

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When the judgments shown above are entered, the AHP software returns the following Analytic Hierarchy Method
local priorities for the six alternatives with respect to Cargo Capacity:
Table 6.9: Priorities Regarding Cargo Capacity

Alternative Local Priority Global Priority

Odyssey 0.310 0.011
Pilot 0.170 0.006
CR-V 0.170 0.006
Element 0.170 0.006
Accord 0.090 0.003
Accord Hybrid 0.090 0.003
TOTAL 1.000 0.036

The local priorities show how much the cargo capacity of each model contributes to the
subcriterion of Cargo Capacity. The global priorities show how much the cargo capacity
of each model contributes to the overall goal of choosing the best car for the Jones
family.
Make the Decision
In the end, the AHP software arranges and totals the global priorities for each of the
alternatives. Their grand total is 1.000, which is identical to the priority of the goal. Each
alternative has a global priority corresponding to its fit to all the familys judgments
about all those aspects of Cost, Safety, Style and Capacity. Here is a summary of the
global priorities of the alternatives:
Global priorities for the Jones family car buying decision: Note that the priorities for
each group of children total that of their parent.
The Odyssey Minivan, with a global priority of 0.220, is the alternative that contributes
the most to the goal of choosing the best car for the Jones family. The Accord Sedan is
a close second, with a priority of 0.213. The other models have considerably less priority
than those two. In descending order, they are CR-V SUV, Accord Hybrid, Element
SUV, and Pilot SUV.
The Analytic Hierarchy Process has shown the Joneses that the Odyssey Minivan best
satisfies all their criteria and judgments, followed closely by the Accord Sedan. The
other alternatives fall significantly short of meeting their criteria. The familys next step
is up to them. They might just go out and buy an Odyssey, or they might use the AHP or
other means to refine their decision between the Odyssey and the Accord Sedan.
6.2.3 Criticisms of AHP
The AHP is now included in most operations research and management science textbooks,
and is taught in numerous universities; it is used extensively in organizations that have
carefully investigated its theoretical underpinnings. While the general consensus is that it
is both technically valid and practically useful, the method does have its critics.
In the early 1990s a series of debates between critics and proponents of AHP was
published in Management Science and The Journal of the Operational Research
Society. These debates seem to have been settled in favor of AHP:

147
Technology Management l An in-depth paper discussing and rebutting the academic criticisms of AHP was
published in Operations Research in 2001.
l A 2008 Management Science paper reviewing 15 years of progress in all areas of
Multi-criteria Decision Making showed that AHP publications have far outnumbered
those in any other area, characterizing their growth as enormous.
l Also in 2008, the major international society for operations research and the
management sciences formally recognized AHPs broad impact on its fields.
Occasional criticisms still appear. A 1997 paper examined possible flaws in the verbal
(vs. numerical) scale often used in AHP pairwise comparisons. Another from the same
year claimed that innocuous changes to the AHP model can introduce order where no
order exists. A 2006 paper found that the addition of criteria for which all alternatives
perform equally can alter the priorities of alternatives.
Most of the criticisms involve a phenomenon called rank reversal, discussed in the
following section.
Rank Reversal
Many people hear about rank reversal and assume that there is some sort of proven
principle about it that needs to be upheld in making decisions. That assumption has led to
much misunderstanding of AHP and other decision making techniques. In actuality, rank
reversal is a complex matter about which there are many conflicting ideas and opinions.
This section offers a simplified explanation of the situation.
Decision making involves ranking alternatives in terms of criteria or attributes of those
alternatives. It is an axiom of some decision theories that when new alternatives are
added to a decision problem, the ranking of the old alternatives must not change. But in
the real world, adding new alternatives CAN change the rank of the old ones. These
rank reversals do not occur often, but the possibility of their occurrence has substantial
logical implications about the methodology used to make decisions, the underlying
assumptions of various decision theories, etc.
A simple example will demonstrate the phenomenon of rank reversal:
Consider a pretty girl in a small town. Shes having a party next week, and she wants to
buy a dress that will impress her guests. She visits the towns only dress store and goes
to the rack of party dresses. There are five such dresses, and after long consideration
she ranks them by desirability as follows:
Table 6.10: Rank Reversal

Rank Style Color Price

1 Style A Blue $109
2 Style A Green $109
3 Style B Red $119
4 Style C Yellow $99
5 Style D Off-White $149

Now imagine that she enters the back room and sees the stores entire inventory of
dresses. The dresses she has looked at in Styles B, C, and D are the only ones of their

148
kind, but there are four more Style A dresses in green and eight more Style A dresses in Analytic Hierarchy Method
blue. In the language of decision science, these dresses are copies of the existing
alternatives. In our one-store small town scenario, theres a reasonable chance that one
or more party guests would buy and wear one of the copies.
When made aware of these new alternatives, our fashion-conscious girl might rank her
choices in a different order. Considering her great embarrassment if a guest were to
wear the same dress that she did, she might rank her choices like this:
Table 6.11: Change in Rank of Choice

Rank Old Rank Style Color Price

1 3 Style B Red $119
2 4 Style C Yellow $99
3 5 Style D Off-White $149
4 2 Style A Green $109
5 1 Style A Blue $109

Notice that the rankings of the two Style A dresses have reversed (since there are more
copies of the blue dress than of the green one). Not only that, but Style A has gone from
the most preferred style to the least preferred. Rank reversal has occurred. Axioms of
decision theories have been violated. Scholars and researchers can cry foul, or impugn
the method by which the girl has made her choice, but there is no denying that in the
world of our example, ranks have been reversed. There is no doubt that the reversal is
due to the introduction of additional alternatives that are no different from the existing
ones.
The above is but one example of rank reversal. Rank reversal can also occur when
additional alternatives are added/removed that are not copies of the original alternatives
(e.g., red and yellow dresses in completely different styles). Another example of rank
reversal occurred in the 2000 U.S. presidential election. Ralph Nader was an irrelevant
alternative, in that he was dominated by both the Democrat and Republican candidates.
However, since he attracted more votes from those who would have voted Democrat
rather than Republican, his presence caused the ranks to reverse. Put another way, if
Nader were not in the race, it is widely accepted that Al Gore would have won.
There are two schools of thought about rank reversal. One maintains that new alternatives
that introduce no additional attributes should not cause rank reversal under any
circumstances. The other maintains that there are both situations in which rank reversal
is not reasonable as well as situations where they are to be expected. The current
version of the AHP can accommodate both these schools its Ideal Mode preserves
rank, while its Distributive Mode allows the ranks to change. Either mode is selected
according to the problem at hand.
Rank reversal and the ideal alternative are extensively discussed in the previously-
mentioned Operations Research paper as well as a chapter entitled Rank Preservation
and Reversal, in the current basic book on AHP. The latter presents published examples
of rank reversal due to adding copies and near copies of an alternative, due to intransitivity
of decision rules, due to adding phantom and decoy alternatives, and due to the switching
phenomenon in utility functions. It also discusses the Distributive and Ideal Modes of the
AHP.

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Technology Management 6.2.4 Softwares of AHP
Expert Choice Software
Expert Choice 2000 is built especially around the AHP because of this methodology is
involved in the application development. After the user has decided about the structure
of his decision, he has to compare all listed alternatives in respect to every lowest criterion
and all criterion in respect to their including top criterion. All gathered data is used as
expert choice software input and entered to this software. After input proceed is done,
all processing and calculation is completed by software, the output of this software is
accessible.
Sensitivity Analysis Software
Sensitivity analysis is used to investigate the sensitivity of the alternatives to change in
the priorities of the criteria. The same comparison is true for alternatives. This software
offers a dynamic sensitivity analysis also which includes four different graphs. Nowadays
technology has a critical role at national development and other key core competency of
any country. Each country depends on technology level and R&D capability, can create
technologies nationally or acquire it from other foreign pioneer via technology transfer.
If TT is selected for technology acquisition, all steps of TT process required to be done
successfully. One of the most important steps is technology source selection which has
to be followed correctly. If the transferee failed at this phase, TT fails and technology
will not be accessed correctly or completely.

6.3 FUZZY MULTI-CRITERIA DECISION MAKING

Fuzzy logic is derived from fuzzy set theory dealing with reasoning that is approximate
rather than precisely deduced from classical predicate logic. It can be thought of as the
application side of fuzzy set theory dealing with well-thought out real world expert values
for a complex problem (Klir 1997).
Degrees of truth are often confused with probabilities. However, they are conceptually
distinct; fuzzy truth represents membership in vaguely defined sets, not likelihood of
some event or condition. For example, if a 100-ml glass contains 30 ml of water, then, for
two fuzzy sets, Empty and Full, one might define the glass as being 0.7 empty and 0.3
full. Note that the concept of emptiness would be subjective and thus would depend on
the observer or designer. Another designer might equally well design a set membership
function where the glass would be considered full for all values down to 50 ml. A
probabilistic setting would first define a scalar variable for the fullness of the glass, and
second, conditional distributions describing the probability that someone would call the
glass full, given a specific fullness level. Note that the conditioning can be achieved by
having a specific observer that randomly selects the label for the glass, a distribution
over deterministic observers, or both. While fuzzy logic avoids talking about randomness
in this context, this simplification at the same time obscures what is exactly meant by the
statement the 'glass is 0.3 full.'
Fuzzy logic allows for set membership values to range (inclusively) between 0 and 1, and
in its linguistic form, imprecise concepts like 'slightly,' 'quite' and 'very.' Specifically, it
allows partial membership in a set. It is related to fuzzy sets and possibility theory. It was
introduced in 1965 by Lotfi Zadeh at the University of California, Berkeley.
Fuzzy logic is controversial in some circles and is rejected by some control engineers and
150
by most statisticians who hold that probability is the only rigorous mathematical description
of uncertainty. Critics also argue that it cannot be a superset of ordinary set theory since Analytic Hierarchy Method
membership functions are defined in terms of conventional sets.
Applications
Fuzzy logic can be used to control household appliances such as washing machines
(which sense load size and detergent concentration and adjust their wash cycles
accordingly) and refrigerators.
A basic application might characterize subranges of a continuous variable. For instance,
a temperature measurement for anti-lock brakes might have several separate membership
functions defining particular temperature ranges needed to control the brakes properly.
Each function maps the same temperature value to a truth value in the 0 to 1 range.
These truth values can then be used to determine how the brakes should be controlled.
Misconceptions and Controversies
Fuzzy logic is the same as "imprecise logic." Fuzzy logic is not any less precise than any
other form of logic: it is an organized and mathematical method of handling inherently
imprecise concepts. The concept of "coldness" cannot be expressed in an equation,
because although temperature is a quantity, "coldness" is not. However, people have an
idea of what "cold" is, and agree that there is no sharp cutoff between "cold" and "not
cold", where something is "cold" at N degrees but "not cold" at N+1 degrees - a concept
classical logic cannot easily handle due to the principle of bivalence. The result has no
set answer so it is believed to be a 'fuzzy' answer.
Fuzzy Logic is a new way of expressing Probability
Fuzzy logic and probability are different ways of expressing uncertainty. While both
fuzzy logic and probability theory can be used to represent subjective belief, fuzzy set
theory uses the concept of fuzzy set membership (i.e. how much a variable is in a set),
probability theory uses the concept of subjective probability (i.e. how probable do I think
that a variable is in a set). While this distinction is mostly philosophical, the fuzzy-logic-
derived possibility measure is inherently different from the probability measure, hence
they are not directly equivalent. However, many statisticians are persuaded by the work
of Bruno de Finetti that only one kind of mathematical uncertainty is needed and thus
fuzzy logic is unnecessary. On the other hand, Bart Kosko argues that probability is a
sub-theory of fuzzy logic, as probability only handles one kind of uncertainty. He also
claims to have proven a derivation of Bayes' theorem from the concept of fuzzy
subsethood. Lotfi Zadeh, the creator of fuzzy logic, argues that fuzzy logic is different in
character from probability, and is not a replacement for it. He has created a fuzzy
alternative to probability, which he calls possibility theory. Other controversial approaches
to uncertainty include Dempster-Shafer theory and rough sets.
Fuzzy Theory
Fuzzy logic is a superset of conventional (Boolean) logic that has been extended to
handle the concept of partial truth, wherein truth is evaluated as a value that ranges
between "completely true" and "completely false". It was introduced by Dr Lotfi Zadeh,
in the 1960s, as a means to model the uncertainty of natural language.
Fuzzy Subsets: The mapping of the sets and subsets is represented as a set of ordered
pairs, with exactly one ordered pair present for each element of S (universe). The first
element of the ordered pair is an element of the set S, and the second element is an
element of the fuzzy subset {0, 1}. Here, the value zero is used to represent non-
membership, and the value one is used to represent membership. 151
Technology Management There are a number of fuzzy AHP methods proposed by various authors. These methods
are systematic approaches to the alternative selection and justification problem by using
the concepts of fuzzy set theory and hierarchical structure analysis. Decision makers
usually find that it is more confident to give interval judgments than fixed value judgments.
Multi-criteria decision analysis (MCDA), sometimes called multi-criteria decision making
(MCDM), is a discipline aimed at supporting decision makers who are faced with making
numerous and conflicting evaluations. MCDA aims at highlighting these conflicts and
deriving a way to come to a compromise in a transparent process.
In trying to make a satisfactory decision when imprecise and multi-criteria situations are
involved, a decision maker has to use a fuzzy multi-criteria decision making method.
Fuzzy Multi-Criteria Decision Making (MCDM) presents fuzzy multi-attribute and multi-
objective decision-making methodologies by distinguished MCDM researchers.
In summarizing the concepts and results of the most popular fuzzy multicriteria methods,
using numerical examples, this work examines all the fuzzy multicriteria methods recently
developed, such as fuzzy AHP, fuzzy TOPSIS, interactive fuzzy multiobjective stochastic
linear programming, fuzzy multiobjective dynamic programming, grey fuzzy multiobjective
optimization, fuzzy multiobjective geometric programming, and more. The choice of which
model is most appropriate depends on the problem at hand and may be to some extent
dependent on which model the decision maker is most comfortable with.

6.4 OTHER METHODS

6.4.1 Technological Leverage
In physics the term leverage is used to indicate mechanical advantage that is given by a
lever (a rigid rod) that is rooted to the ground at a point called fulcrum. Through appropriate
positioning of the fulcrum, a lever can be used to move or lift huge loads by applying
minimal effort. The act of employing a correct lever, thus, gives a distinct mechanical
advantage. Likewise, the act of exploiting the technological edge (superiority, rareness or
inimitability etc.) to derive specific business advantages may be called technological
leverage. Let us take the case of Sundaram Fasteners Ltd, (SFL) to illustrate the point.
The companys commitment to quality goes back a long way. It was the first company to
get ISO certification in 1990. Nobody in India had heard of ISO then. It re-engineered its
plant and production processes and continuously expanded capacity so that today it is
recognised as a world class giant with virtually zero breakdowns, zero accidents and zero
defects. Spending close to 3 percent on R&D where the industry average is just one
percent or so, Sundaram Fasteners today has developed world class design and
development facilities and top class tooling capabilities. One study rates Sundaram Fasteners
among the 20 most competitive companies in Asia. It has won several awards for its HR
programmes and its extensive training programmes on quality. All the plants operate at full
capacity and the per worker productivity of the company is a topic of discussion in academic
and industry circles. Not surprisingly, it won the General Motors award for quality for the
fourth successive year recently. (GM awards this to 150 suppliers out of a total of 30,000).
Apart from the total productivity maintenance awards, SFL is now trying for the TPM
world class company award, competing against global suppliers. Over the years SFL has
used its design, manufacturing and tooling capabilities to gain superiority over its rivals
combining technology, human resources and leadership skills in an admirable way.
In an e-mail survey based on international quality rating system administered on over 30
Indian top class organisations, Suresh Lulla found that excellent companies are quality-
driven, research-oriented, customer-focussed and invest heavily in Design/Development
152 (D/D) and continuous improvement (Passion for Excellence, the Week, May 28, 2000).
 Table 6.12: Ten Excellent Companies in India: Technology Driven Analytic Hierarchy Method

Name of HR Leadership Communi- Marketing D/D After Contin- Customer

Companies cation sale uous satisfaction
improve-
service ment
L&T (EPC)

HDFC

Shankar
Netralaya
Sundaram
Fasteners
TCS

Jet Airways
Reliance

ITC (PPI)

Punjab
Tractors
Vikram
Cement

6.4.2 Technology Life Cycle and Competitive Advantages

Way back in 1965, Theodore Levitts article on the product life cycle suggested that a
companys basic technology should be embodied in a range of products. A thorough
exploitation of a companys technology should include now-a-days, not only product
applications but also technology sales.
Box 6.1: When to Sell Technologies?

l Sell when the technology is irrelevant. GE developed a micro-organism that destroys

spilled oil by digesting it. It is now selling the technology because it does not fit into
its major line of business.
l Sell when the technology does not fit into a companys overall strategy. GE sold its mature
Fluidies technology because it did not reinforce the companys strengths or strategy.
l Sell when patents fail to protect the technology. The technology that can be easily
duplicated by competitors cannot be protected through patents. (Eastman Kodak Vs
Polaroid fighting over instantpicture technology).
l Sell when further investments may eat up the company. Sinclair Radionics, a small
British company in consumer electronics industry which invented the flat screen
colour television technology had to go for joint ventures with multinational electronics
companies because of its own past marketing problems.
l Sell when the company is not able to capture all the world markets for a given
technology through own products. Restrictions in Third World countries, of course,
speed up the process of setting up subsidiaries across countries in order to derive
maximum benefits out of a technological breakthrough. For example American Motors
produces jeeps through its subsidiaries in Korea, India, Australia, Pakistan, Srilanka,
Philippines, Thailand, Bangladesh etc.
l Finally, companies like Xerox had to offer non-exclusive licenses on a number of its
products at either no royalty or a minimal royalty to avoid charges of complete
monopoly (anti-trust laws come in the way of overpowering monopoly positions).

A company that wants to get the most out of its technology must plan carefully to realise
the full market value of that technology at all stages of its Technology Life Cycle (TLC)
evolution. The TLC model generally identifies the various phases that product technologies
go through during their lifetimes. 153
Technology Management (a) Technology Development: This stage begins long before any production, when
research shows a potentially valuable technology. Since everything is in an embryonic
stage, the major focus will be on whether further development of technology should
take place. Normally, development takes place if (Ford and Ryan, 1981):

Company Company Major

production technology technology
cycle sales application
High

Penetration of
technology
Inception
Low point
1
Technology development
2
Technology application

3
Application launch
4
Application growth
5
Technology maturity

6
Degraded technology
Stages of development

Figure 6.2: The Technology Life Cycle

v The technology fits with the companys overall strategy and finds application
in an identifiable market.
v The company has financial resources to develop the technology and the
technology is compatible with the companys production and marketing skills.
v The projected returns on development are favourable when compared to
alternative investments.
Real-life situations are, often, very complex. The technology may have several
potential but unclear and possibly unrelated applications. It may not be
clear as to which application would produce rewards matching investments.
When the picture is hazy as indicated previously, companies go after joint
ventures or even sell the technology at a remunerative price.
(b) Technology Application: Once a company decides to apply a technology to a
new product whether for its own products or for production by others it incurs
its first major costs. In view of the heavy initials costs, companies usually take a
cautious approach at this stage. When embodying technology in a product,
companies incur heavy costs in developing associated process and product
technologies available with other companies. It may be necessary to join hands
either through licensing or joint risk-bearing strategies. The computer system Ethernet
is being launched by Xerox in association with Digital Equipment and Intel to set up
communication networks within single buildings or closely built cluster of buildings.
Possible applications of technology become clearer and finances will be readily
forthcoming when the technology begins to take a concrete shape and comes to
the pre-production stage. Generally, depending on the cost and revenue projections,
154
 companies decide on appropriate strategies. Dolby Laboratories initially sold noise Analytic Hierarchy Method
reduction units to recover a part of investment involved in noise reduction technology
for tape equipment. After gaining a foothold in the market the promoter, Ray
Dolby started introducing the technology into mass market for consumer tape-
recording equipment.
Box 6.2: Five Cost-Cutting Innovations: Product Development

l Bajaj Auto puts product-development costs into departmental budgets to keep them
in check.

l Larsen & Turbo maintains a CAD database so as to not design every new product
from scratch.

l Marico gets every function involved in the design process to anticipate downstream
costs.

l Titan Industries ensures that marketing inputs go into design to reduce the chances
of rejection.

l Voltas tracks cost-cutting technologies globally for assimilation into product-

development.

Source: Business Today, January 7, 1999.

(c) Application Launch (Abernathy and Utterback): If a technology has been

developed to the point of a product launch without the involvement of potential buyers,
decisions on its exploitation become more complex. A number of issues may go
against pre-set plans. There may not be enough companies around with requisite
skills to employ the new technology properly. Sale of technology at this stage may
also get delayed because of long lead times involved in customer purchase of a
relatively unproved technology. It took a long time for NIIT, Aptech, ICFAI etc. to
sell their private information technology and finance courses to students because of
the unapproved (not given recognition by the government) nature of the courses.
Lack of governmental patronage may add to the woes. The sale of technology may
also be not possible if the technology has strategic or military implications as for
example in such fields as computer networks, high-energy lasers, wide-bodied aircraft
etc. The originating company may also delay the sale of a technology (so that it will
find innumerable applications outside) until it recovers its costs by taking advantage
of the opportunity to skim the market as a monopoly supplier.
(d) Application growth: This is the stage of sales maximisation. The originating
company begins to reap the rewards of increasing product sales. Competitors evince
keen interest to have their own alternative versions of products based on the
technology. A technology sale at this stage is most difficult but it is always better to
get out before customer interest lessens and competitors come out with improved
technologies. A realistic assessment, often, depends on several other issues.
v Market size: It may be difficult to exploit an innovative technology through
own production facilities. Selective license arrangements with regional players
may be a better option to expand market size quickly.
v Technological leadership: It the originating company is willing to share the
technology with others, competitive incentive to engage in their own
technological development lessens considerably. The originator, by investing
its additional cash flows in further R&D, can improve its market leadership.
155
Technology Management v Standardisation: The originator of a technology enjoys the early bird
advantage and the first product becomes the standard. However, by stage 4
competitors may come out with alternative technologies and if they enjoy
any production advantages, may soon flood the market with own versions.
In such a scenario, active sale of licenses may help the original company
incorporate its technology into the production of as many companies as
possible. For example Philips N V successfully achieved such standardisation
in the market for pocket dictating machine cassettes. Although Philips does
not produce all the cassettes for all the machines in the world, most are
produced as per its design and are subject to a royalty payment to Philips.
(e) Technology Maturity: Maturity implies awareness, active participation and
successful implementation of processes surrounding a technology. Both the originator
and competing companies have their own versions of technology applications covering
the market place in various degrees. No longer is timing of technology sales crucial.
The focus now shifts to other issues such as production costs, relations with buyers
and own production facilities. The originators production will level off or decline
as the market stabilises at a particular level. The only fresh markets for the
technology will now be found in less developed countries that are eager to substitute
their own production for imports (Technology transfer issues discussed in detail in
the ensuing chapters).
(f) Degraded Technology: By this stage, the technology finds universal application,
the licensing arrangements will more or less expire; there will be very little left in
the technology in the form of commercial value. There could be some exceptions
when older technologies could still find application in other countries which have
not been exposed to similar technological advances hither to.
6.4.3 BTM Maturity Model
A maturity model describes how well an enterprise performs a particular set of activities
in comparison to a prescribed standard. In this case, the BTM Maturity Model defines
five levels of maturity, scored across the four critical dimensions-process, organization,
information and technology and assists in levying a grade based on objective, best practice
characteristics. The maturity model also makes it possible for an enterprise to identify
anomalies in performance and benchmark itself against other companies or across
industries. The measurement of BTM capabilities through the BTM Maturity Model
identifies areas most in need of improvement, fixes the starting point for the enterprise,
and specifies the path for change. A growing body of research shows that at level 1,
enterprises typically execute some strategic business technology management processes
in a disaggregated, task-like manner. A level 2 organization exhibits limited BTM
capabilities, attempts to assemble information for major decisions, and consults IT on
decisions with obvious business technology implications. Enterprises at level 3 are
"functional" with respect to BTM, and those at level 4 have BTM fully implemented.
Organizations achieving level 5 maturity are good enough to know when to change the
rules to maintain strategic advantages over competitors who themselves may be getting
the hang of BTM.
The evidence also shows that enterprises at lower levels of maturity will score lower for
business technology productivity, responsiveness, and project success than enterprises
at higher levels. As BTM maturity extends past level 3, the resulting synchrony of business
strategy and technology delivery makes the enterprise more agile and adaptable. For
such companies, changes in the business landscape impel appropriate adjustments to
156
strategy and corresponding action without major disruptions or anguish. Emerging Analytic Hierarchy Method
opportunities are sensed and addressed more quickly. Project execution to deliver new
capabilities is more sure-footed. As joint management of business and technology improves,
the maturity of the enterprise is reassessed to focus the next set of priorities.

Check Your Progress

Write a study note on the Fuzzy multi-criteria decision making.

6.5 LET US SUM UP

Appropriate technology helps make processes easier to execute, facilitates timely information
sharing, and enables consistent coordination between elements and layers of the organization.
The complexity of managing the business technology function and increasing demands
of an ever-evolving business climate require more information transparency and operational
synchronization than basic computing tasks can provide.
The Analytical Hierarchy Process (AHP) is a decision-aiding method it aims at quantifying
relative priorities for a given set of alternatives one a ratio scale, based on the judgment
of the decision maker, and stresses the importance of the intuitive judgments of a decision
maker as well as the consistency of the comparison of alternatives in the decision making
process.
There are a number of fuzzy AHP methods proposed by various authors. In trying to
make a satisfactory decision when imprecise and multi-criteria situations are involved, a
decision maker has to use a fuzzy multi-criteria decision making method. The choice of
which model is most appropriate depends on the problem at hand and may be to some
extent dependent on which model the decision maker is most comfortable with.
The building blocks of the business technology management standard work together as
a management system to clarify required enterprise business needs. BTM fulfills these
needs through the application of 17 BTM capabilities that are grouped into the functional
areas of Governance & Organization, Managing Technology Investments, Strategy &
Planning, and Strategic Enterprise Architecture.
These capabilities are defined and created by four critical dimensions-processes,
organization, information and technology. The BTM Maturity Model is used to identify
areas most in need of improvement, to fix the starting point for the enterprise, to specify
the path for change, and to measure progress. As a result, technology is governed in
consonance with business requirements, with very measurable benefits.

6.6 KEY TERMS

Effective Technology: Effective technology, i.e., management automation tools, can
help connect all the other dimensions. Appropriate technology helps make processes
easier to execute, facilitates timely information sharing, and enables consistent coordination
between elements and layers of the organization.
TT: Technology transfer (TT) is one option for a developing country to acquire newer
technology. The latest technology growth at new industrialized countries is highly depends
on TT from developed area.
157
Technology Management AHP: The Analytical Hierarchy Process (AHP) is a decision-aiding method developed
by Saaty. It aims at quantifying relative priorities for a given set of alternatives one a
ratio scale, based on the judgment of the decision maker, and stresses the importance of
the intuitive judgments of a decision maker as well as the consistency of the comparison
of alternatives in the decision making process.
Sensitivity Analysis: Sensitivity analysis is used to investigate the sensitivity of the
alternatives to change in the priorities of the criteria.
Fuzzy AHP Methods: These methods are systematic approaches to the alternative
selection and justification problem by using the concepts of fuzzy set theory and hierarchical
structure analysis.
MCDA: Multi-criteria decision analysis (MCDA), sometimes called multi-criteria decision
making (MCDM), is a discipline aimed at supporting decision makers who are faced
with making numerous and conflicting evaluations.
Fuzzy MCDM: Fuzzy Multi-Criteria Decision Making" (MCDM) presents fuzzy multi-
attribute and multi-objective decision-making methodologies by distinguished MCDM
researchers.
Maturity Model: A maturity model describes how well an enterprise performs a particular
set of activities in comparison to a prescribed standard.
BTM Maturity Model: BTM Maturity Model defines five levels of maturity, scored
across the four critical dimensions-process, organization, information and technology
and assists in levying a grade based on objective, best practice characteristics.
BTM Maturity Model: The BTM Maturity Model is used to identify areas most in need
of improvement, to fix the starting point for the enterprise, to specify the path for change,
and to measure progress.

6.7 TEST QUESTIONS

1. What do you understand by the concept of analytic hierarchy method?
2. Discuss the concept of Fuzzy multi-criteria decision making.
3. What are the various methods used in technology choice decision making?

6.8 SUGGESTED READINGS

Gerard H. Gaynor, Handbook of Technology Management, Mc-GrawHill.
Noori H & Radford R.W., Reading and cases in the Management of New Technology,
Englewood Cliffs, N.J. Prentice Hall, 1990.
Bowonder B. and Miyake T., Technological forecasting, Methodologies and Case
Studies.
Sudhindra Bhat, Security Analysis and Portfolio Management, Excel Books, New
Delhi.

158
UNIT IV
LESSON

7
TECHNOLOGY TRANSFER AND ACQUISITION
CONTENTS
7.0 Aims and Objectives
7.1 Introduction
7.2 Technology Transfer
7.3 Technology Acquisition
7.4 Implications of Uruguay Round, and WTO
7.5 Bargaining Process
7.6 Transfer Opinion
7.7 MOU
7.8 Let Us Sum Up
7.9 Key Terms
7.10 Test Questions
7.11 Suggested Readings

7.0 AIMS AND OBJECTIVES

After studying this lesson, you will be able to understand:
1. The concepts of technology transfer and acquisition.
2. The import regulations regarding the transfer of technology.
3. The implication of Uruguay Round on technology, trade and other laws.
4. The importance and role of WTO.

7.1 INTRODUCTION
The concept of technology transfer is not new. In the thirteen century Marco Polo
helped introduce to the Western world Chinese inventions such as the compass,
papermaking, printing, and the use of coal for fuel. In Islamic countries, knowledge of
the technology of manufacturing paper came in AD 751 following a battle between Arab
and Chinese forces in which the Chinese were defeated.
The Arab captured skilled Chinese paper manufacturers and began to produce a paper
in Samarkand. Technology transfer is infact the translocation of innovations arising in
one firm or country to others. In technology transfer, knowledge passes from the innovator
to one or more recipient, who thus avoids the need to conduct independent research, or
to develop projects, or to test and evaluate the outcomes of research.
Technology Management Technology transfer is the application of technology to a new use or user. It is the
process by which technology developed for one purpose is employed either in a different
application or by a new user. The activity principally involves the increased utilisation of
the existing science/technology base in new areas of applications as opposed to its
expansion by means of further research and development. (Languish et al, 1982, Wealth
from knowledge, Macmillan, London)
Seaton and Cordey-Hayes (1993), The development and application of interactive models
of technology transfer, Technovation, 13(1), 45-53 have defined technology transfer in
following manner:
The process of promoting technical innovation through the transfer of ideas, knowledge,
devices and artefacts from leading edge companies, R&D organizations and academic
research to more general and effective application in industry and commerce.
Point to Point technology transfer occurs when a single donor transfers technology to a
single recipient, e.g., firm to firm or from one research institute to another. Diffusion
conversely refers to the situation where there are many recipients, all having easy access
to technology.

7.2 TECHNOLOGY TRANSFER

Technology transfer is the process of sharing of skills, knowledge, technologies, methods
of manufacturing, samples of manufacturing and facilities among governments and other
institutions to ensure that scientific and technological developments are accessible to a
wider range of users who can then further develop and exploit the technology into new
products, processes, applications, materials or services. It is closely related to (and may
arguably be considered a subset of) Knowledge transfer. Related terms, used almost
synonymously, include "technology valorisation" and "technology commercialisation". While
conceptually the practice has been utilized for many years (in ancient times, Archimedes
was notable for applying science to practical problems), the present-day volume of
research, combined with high-profile failures at Xerox PARC and elsewhere, has led to
a focus on the process itself.
7.2.1 Reasons for Technology Transfer
The are various reasons because of which companies engage in transfer of technology.
Some of them are as follows:
1. Profit from selling technology: The biggest reason for the transfer of technology
is profit. Many companies sell their technology to earn a profit. When after the
Second World War, Kodak had to quit the Japanese market because of certain
restrictions, it frequently sold its technology to Japanese firms like Konica and Fuji
to earn profit.
2. Location and Logistics Advantage: Technology is transferred as production may
be cheaper abroad and output does not have to be transported over long distances
to reach the end consumer.
3. Competitive Edge: To gain competitive edge in foreign markets through the supply
of technically superior products.
4. To Obtain Grants and Subsidies: Many underdeveloped and developing countries
give various incentives to MNCs to invite them and their relative advanced
162 technology into their country.
5. Limitations of Home Country: Many companies find that the scope for expansion Technology Transfer and
Acquisition
in their home countries is limited. In order to expand, they have to transcend their
national boundaries, as well as be ready for technology transfers. For that they
have to transfer their technology.
6. To exploit superior capital markets, access to skilled labour and other inputs in
foreign countries.
7. To enhance the competence and potential of foreign subsidiaries.
7.2.2 Methods of Technology Transfer
Technology can be transferred via the following methods:
1. Direct Foreign Investment
2. Licensing
3. Franchising
4. Management Contracts and/or Turnkey Arrangement
5. Contract Manufacturing
6. Joint Venture
Foreign Direct Investment: Through the FDI rout organizations transfer the technology
to target nations through its own subsidiary, that is, by investing themselves. As in India,
Hyundai established its own subsidiary and thus brought its technology to India.
Licensing: Organizations transfer the technology and provide licences to the user for
use of technology. Under this arrangement only a license holder can use the technology.
As in the case of software, the user purchases the licence to use the software from the
technology provider, against royalty or payment of other fee.
Franchising: Franchising is similar to license, where organizations establish their own
franchise and transfer their technology to the franchisee. The franchisee operates on
behalf of the organization. In the franchisee system companies have a direct control, but
under the licensing system the control of the company is only up to the limit of providing
technology. As the franchisee operates on behalf of franchiser, the franchisee carries
the name and trademark of the franchiser. For instance McDonald's creates its franchises
and transfers the technology to the franchisee.
Management Contracts and/or Turnkey Arrangement: This is a point to point
technology transfer where organizations either transfer the technology to other
organizations under certain terms and conditions, or simply establish a project for a host,
train its personnel to operate it and transfer the control to the host. In India the steel
plants of Bokaro, Bhilai, etc., are established under this type of contract.
Contract Manufacturing: Under contract manufacturings organizations transfer the
technology to the user and get the product manufactured from the user for themselves.
It is a common type of technology transfer. BPOs are a typical type of contract
manufacturing. Many Multi National Pharmaceutical Companies transfer their technology
to the companies of nations like India and get their built drug manufactured from India
because of low manufacturing costs in the country. Similarly, many Indian companies
like HLL, Marico, Bajaj Electricals, Colgate, etc., transfer their technology to some
other manufacturers and get the products manufactured from them. 163
Technology Management Joint Venture: Under joint ventures organizations transfer the technology to their joint
venture partner. They provides the technology to the host nation through a partner from
a host nation. This arrangement is beneficial for both. Maruti Suzuki, Kawasaki Bajaj,
Hero Honda, are examples of very successful joint ventures where technology transfer
have taken place.
7.2.3 Technological Literacy
Technological Literacy can be described as the intellectual processes, abilities and
dispositions needed to understand the link between technology, individuals and society in
general. Technological Literacy is concerned with developing awareness of how
technology is related to the broader social system, and how technological systems can
never be divorced from the political, cultural and economic frameworks that shape them.
In order to achieve an informed, balanced and comprehensive analysis of the technological
influences on their lives and then be able to act on the basis of their analysis, students
require certain levels of knowledge, skills and abilities. These include:
l understanding that technology includes hardware, know-how, cultural needs and
desires, and economic and political decision making;
l understanding how technology shapes and is shaped by society;
l understanding that technological issues involve conflicting assumptions,
interpretations and options;
l having the necessary data collection and decision making skills to make intelligent choices;
l having the ability and desire to take responsible actions on social issues.
7.2.4 Transfer Process
Many companies, universities and governmental organizations now have an "Office of
Technology Transfer" (also known as "Tech Transfer" or "TechXfer") dedicated to
identifying research which has potential commercial interest and strategies for how to
exploit it. For instance, a research result may be of scientific and commercial interest,
but patents are normally only issued for practical processes, and so someone -- not
necessarily the researchers -- must come up with a specific practical process. Another
consideration is commercial value; for example, while there are many ways to accomplish
nuclear fusion, the ones of commercial value are those that generate more energy than
they require to operate.
The process to commercially exploit research varies widely. It can involve licensing
agreements or setting up joint ventures and partnerships to share both the risks and
rewards of bringing new technologies to market. Other corporate vehicles, e.g. spin-
outs, are used where the host organization does not have the necessary will, resources
or skills to develop a new technology. Often these approaches are associated with raising
of venture capital (VC) as a means of funding the development process, a practice more
common in the US than in the EU, which has a more conservative approach to VC
funding. Spinoffs are a popular vehicle of commercialisation in Canada, where the rate
of licensing of Canadian university research remains far below that of the US.
Technology transfer offices may work on behalf of research institutions, governments
and even large multinationals. Where start-ups and spin-outs are the clients, commercial
fees are sometimes waived in lieu of an equity stake in the business. As a result of the
potential complexity of the technology transfer process, technology transfer organizations
164 are often multidisciplinary, including economists, engineers, lawyers, marketers and
scientists. The dynamics of the technology transfer process has attracted attention in its Technology Transfer and
Acquisition
own right, and there are several dedicated societies and journals.
7.2.5 Transfer of Technology
Transfer of technology can be effected in various ways. The common ones are listed
below:
l Turnkey approach: The setting up of complete works including the design and
setting up of plant and equipment, training of personnel of recipient organisation at
the factory site, deputing experts to the site for overseeing operations at the site
of the technology recipient.
l Joint venture: The setting up of a company in the country of technology recipient
in which both transferor and transferee participate in the equity, in accordance
with the laws of the land.
l Licensing agreement: This is the most common method of technology transfer
followed in less developed countries. The agreement permits the recipient
organisation to carry out production utilising the technology, facilities and other
inputs provided by the transferor company for a licensing fee (to be paid during the
tenure of the agreement).
l One time purchase: The local company, at times, may decide to buy the technology
that has a bright future for a long time, from the foreign partner by effecting a lump
sum payment.
l Vetting: Vetting by a foreign collaborator of new designs developed indigeneously
(against a fee) is undertaken in all such cases where the stamp of approval helps a
local company to meet customer expectations in a better way.
l Buying the products: The local company may also buy ready-made products in a
knocked-down condition so as to perfect the design indigenously through direct/
reverse engineering.
7.2.6 Strategies for Transfer and Absorption of Technology
Immediately after signing the technology transfer agreement, the technology recipient
organisation should get ready with a technology transfer plan, documenting various steps
required to obtain technology as per a definite schedule. Such a plan should cover important
aspects such as: adaptability of technology, suitability of local materials, equipment and
other inputs, R&D facilities to be created, degree of indigenisation needed, erection of
plant, training of personnel at site, arranging for experts from transferor company etc.
7.2.7 Global Scenario
In the view of the global scenario, and fast changing world, especially in the field of
technology transfer, there has emerged new leader China, albeit prior to the decade of
the eighties, Japan was at the helm of affairs of technology. India is still behind China. It
is an issue of crucial importance for us to understand as to what has been the motivation
of European companies in transferring technology to China, the modes chosen by them
and their strategies for dealing with the risks of loss of technological advantages .To
other foreign companies doing business in China, this study is very helpful because they
can get the picture of what others are thinking and why they think in that way. To the
economists, they can get much useful information, which is good for their economic
analysis. And to Chinese government and companies, this is especially of great
importance. There is an old Chinese saying:" Knowing your rivals as you know yourself, 165
Technology Management you will surely win the war." Therefore, with the help of this study, we have some idea of
what the foreign investors are thinking and doing, we can thus take corresponding actions
and take better use of what they provide, and then negotiate with them for further
cooperation. It is important to note here that this study has methodological limitation.
Because when doing fundamental research, they use questionnaire to collect information.
This way of doing research can give exact feedback, and it may also be there that the
respondents may not think it necessary or important to state their real opinions.
An assessment study of Chinese capability to absorb, use and replicate the technologies,
and the study estimated that 25% of the technologies transferred could be absorbed and
used within one year, but in general most would take much longer for the Chinese to
master, especially replicate them. In terms of absorption, 25% would take between three
and ten years, 23% of the technologies were associated with a replication period of over
a decade, and 27% of the transferred technologies had estimated replication rates of
three years or less. As to the EU firms, 90% of the firms expected to use R&D as a
means of staying ahead of local Chinese competition, 50% indicated that collaboration
with Chinese partners was part of their strategy. And a half of the firms restrict the
amount or type of technology transferred to China to protect their competitive status.
It is worth mentioning here that International technology transfers are growing at a great
speed as many trade barriers lowered. Especially, in recent years the volume of inward
FDI into China has been second only to that into the U.S.A.

7.3 TECHNOLOGY ACQUISITION

Technology Acquisition covers all facets of technology acquisition management, including
the "people dynamics" that can make or break a project. Many mergers are in truth
acquisitions. One business actually buys another and incorporates it into its own business
model. Because of this misuse of the term - merger, many statistics on mergers are
presented for the combined mergers and acquisitions (M&A) that are occurring. This
gives a broader and more accurate view of the merger market.
Why would you choose to merge? For the first time in history, acquisitions have surpassed
IPOs not only in dollar value, but in number completed. For many companies, the erratic
nature of the IPO market is far too risky. Being acquired is often a lucrative long-term
growth strategy for a small business.
For the buyer, with the market changing so rapidly, product development has become a
luxury that is not always a viable option. M&A has essentially become an efficient
means to enter a new market. Buyers are more than willing to pay premium prices to
gain market entry for a product that extends or diversifies their product line. Acquisitions
can also expand customer bases, providing a more solid overall corporate business base.
One of the greatest challenges for startup companies is having capital when you need it.
While an IPO initially may seem to generate large amounts of cash, the founders, who
have often mortgaged all they have to get off the ground, cannot count on an IPO for
providing personal capital resources. Not only is there a personal lockup time, but many
IPOs experience a drop in price after the early rush. Of the 724 technology companies
that went public in 1992 or later and remained independent, 58% were trading at less
than their IPO price six years later. With an acquisition, however, part of the negotiation
can include at least partial liquidity at the time of transfer.
Mergers are not without their downsides. They can consume an incredible amount of
166 time and money, legal and tax complications, and problems with mixing corporate cultures.
It has been estimated that a full 50% of mergers never achieve the initial financial and Technology Transfer and
Acquisition
market goals projected. Interestingly, this percentage has remained relatively stable over
the past 40 years in spite of the growth of mergers as a viable option for businesses.
For the corporate leadership, the whole process can be so overwhelming that the business
deteriorates. Stories abound about founders being dismissed and employees let go after
the completion of the deal, corporate cultures failing to mix, and markets not responding
as expected. The stress of putting this together in a viable manner can take its toll on
everyone from the founder on down.
Import Regulations
The Government of India's Policy for import of technology has been changing from time
to time. Prior to 1991, the policy was quite restrictive. The Government then evaluated
almost all proposals for technology imports and only those technologies were allowed for
import, which were considered important in the national interest.
With liberalization in various spheres of economy and industrial activity, the policy for
import of technology has also been substantially liberalized. The Department of Industrial
Policy and Promotion formulates the Policy, in association with other Ministries and
Departments of the Government and non-government organizations. As per the current
Policy, technology can be imported through either the automatic route or the non-automatic
route. To be eligible for import under the automatic route, an importer has to fulfill certain
parameters laid down by the Government. Major conditions are
1. Lump sum payment does not exceed US $ 2 million
2. Royalty payment is limited to 5% for domestic sales and 8 % for exports, without
any restriction on the duration of the royalty payments. The royalty limits are net of
taxes.
3. Proposals which attract compulsory licensing
4. Items of manufacture are not reserved for manufacture in the small-scale sector.
Those that fall under the Automatic route are required to apply to Reserve Bank of India
and a reply is received from the Bank in about 15 days time.
Those who do not fall under the automatic route are required to apply to the Secretariat
for Industrial Assistance (SIA) and after due examination, the importer is informed if it
could import the technology or not. Generally the decision of the Government is known
within 4-6 weeks of making the application. The Government has also specified upper
limits of equity holdings by foreign companies (called sectoral caps) to be eligible under
automatic approval. However in most of the cases foreign direct investment up to 100 %
is permissible under the automatic route. Those who propose higher equity than the
permissible limit under the automatic route is required to apply to Government for
permission.
Research and Development Cess Act, 1986
The Technology Development Board (under the Technology Development Board Act,
1995) is the first organization of its kind (within a government framework) with the sole
objective of commercializing the fruit of indigenous research. The Board plays a proactive
role by encouraging enterprises to take up technology oriented product. Under section 3
of the Research and Development Cess Act, 1986, a cess at 5% is levied on all payments
made towards the import of technology. 167
Technology Management For the purpose of levying the cess, payment shall include:
(a) Payment made towards import of technology as approved by the central government
in terms of any foreign collaboration agreement, or approved in accordance with
the industrial policy of the government of India, in force, from time to time.
(b) Payment made towards the cost of drawings and designs in terms of any foreign
collaboration agreement as approved by the central government or approved in
accordance with the industrial policy of the government of India, enforced from
time to time.
(c) Payment made to foreign collaborators or to any other person for or in connection
with deputation of technical personal to India in terms of any foreign collaboration
agreement, in accordance with the approval granted by the central government or
approved in accordance with the industrial policy of the government of India, from
time to time.
(d) Any other payment made towards the import of technology approved by the central
government.
Although Import of Technology is amorphous in the R&D Cess Act 1986, section 2 (d)
and 2(h), delineate the terms import and technology respectively.
Section 2(d) defines import as,
Import in relation to any technology, means the bringing into India of, such technology
from a place outside India. In plain language we can articulate that when India brings
any technology from the foreign country or countries by way of business or commerce,
it is known as import.
Section 2(h) defines technology as,
Technology means any special or technical knowledge or any special service required
for any purpose what so ever by an industrial concern under any foreign collaboration,
and includes designs, drawings, publications and technical personnel.
By pooling the above mentioned definitions, import of technology can be read as any
special and technical knowledge or service which is brought into India from any other
country.
The expression any special technical knowledge means any additional qualification or
experience or information which is required to solve any technical problem. Any special
service means a service for which supplementary or additional qualification is required.
The phrase, for any purpose what so ever by an industrial concern signifies a wide
interpretation. The term industrial concern in itself is very wide, and the expression for
any purpose is even wider and it includes almost every industrial activity. Therefore the
definition of Industrial concern is:
Any concern engaged or to be engaged or to be engaged in:
(i) the manufacture, preservation or processing of goods,
(ii) mining and development of mines,
(iii) hotel industry,
(iv) transport of passengers or goods by road or by water or by air,
168
(v) generation and distribution of electricity or any other form of power, Technology Transfer and
Acquisition
(vi) the manufacture, repair, testing or servicing of machinery of any description or
vehicles or vessels or motor boats or trailers or tractors,
(vii) assembling, repairing or packing any article with the aid of machinery or power,
(viii) the setting up or development of an industrial area or industrial estate,
(ix) fishing or providing shore facilities for fishing or maintenance thereof,
(x) providing special or technical knowledge or other services for the promotion of
industrial growth,
(xi) providing weigh bridge facilities,
(xii) the research and development of any process or product in relation to any of the
matter aforesaid.
Further, the definition of technology says under any foreign collaborations. This would
necessarily include:
(1) Financial collaboration (foreign equity participation) where foreign equity alone is
involved.
(2) Technical collaboration (technology transfer) involving licensing of technology by
the foreign collaborators on due compensation.
Include designs, drawings, publications and technical personnel: In section 2 (h),
the terms designs, drawings, publications and technical personnel have been used but no
definition of these terms has been given in the R&D Cess Act, 1986. These terms have
been defined in other Indian legislations.
Designs is defined in Section 2 (d) of the Designs Act, 2000, as designs means only the
features of shape configuration, pattern, ornament or composition of lines or colours
applied to any article, whether in two dimensional or three dimensional or in both forms.
Drawings is defined in section 2(i) of the Indian Copyright Act, 1957, as Drawings
include a diagram, map, chart or plan.
Publications is defined in section 3 of the Indian Copyright Act, 1957, as Publication
means- making a work available to the public by issue of copies or by communicating the
work to the public.
Whereas the term technical personnel has not been defined anywhere in any Indian
legislation but a general definition which we can derive is, a person who can understand
the concept, complexity and relationship of certain matter or subject.
Import of Technology
There are three modes of import of technology.
(a) Indirect Import of Technology: Indirect import is in question when the firm is not
directly involved in the import operation. The firm acquires the goods through another
company or middleman that is located in the importers home country. The middleman
can be an import agent, commission merchant, broker or importer. It can also be a
joint buying organization working as a chain. Indirect import may be referred as
domestic business from the point of view of the firm. Only if a non-buying type of
middleman is used, does the firm have to be concerned of some of the technical 169
Technology Management matters related to imports. Indirect import is a low risk and simple way of starting
import business. This is especially true if the firm has little or no experience
conducting business abroad. For a firm, that already has some experience in
traditional import, but has too limited resources to expand its business, indirect
import offers a way to take advantage of the resources of other experienced
importers and to broaden its business.
(b) Direct mode of import of technology: The second possibility is direct import,
when the importing firm takes care of the importing activities and is in direct contact
with the first middleman in the suppliers country or any foreign country. This
middleman can be an export agent, a commission merchant, an export firm of a
joint export organization in the form of a local regional or national export association
or product- or industry- based export association. It can also be a publicly owned
export organization based on product, area or target country. It is also direct
importing when a firm buys from a domestically owned company, e.g., A purchasing
unit located in a foreign country.
Using direct import, the distribution chain becomes shorter and so it might reduce
total costs increasing profitability and making the price more competitive. The firm
also gets more information from the supply market area.
Some of the problems and disadvantages are that direct importing requires more
knowledge about the business environment and if the preconditions demanded from
the firm are not fulfilled, it might not be able to effectively conduct the operations
needed. Direct importing also requires more financial resources, as the firm has to
finance activities that in indirect importing are covered by the domestic middleman.
Direct importing includes the usage of middleman and so it may still be more
expensive and not so effective as the own importing. There might also be blockages
in the information flow from the original supplier.
(c) Own import method: Own import exists when there is no domestic or foreign
middleman between the importer and the supplier. Own importing requires
continuous traveling and keeping in contact with the supplier and it also means
direct and rapid feedback. All the necessary functions are taken care by the importing
firm itself. The buyer has to carry greater financial risks and also the initial investment
required is high. Even if the own importing is the most expensive mode it can also
be the most efficient. It also possible to carry out importing as a joint project of
some domestic companies.
A buying organization is established by two or more importing firms and it assumes
the responsibility of taking care or all import operations of joint firms and represents
them. In the joint organizations the cost are divided among the members and
centralized import routines increase efficiency and decrease risk.
Know-how
Know-how is not defined in R&D Cess Act, 1986, or any other Indian legislation but the
definition which we can draw is, it is a kind of knowledge of a particular technology or
subject, or it means to be acquainted with or be familiar with certain kind of technology
and service, or the Knowledge/experience/expertise/savvy, regarding particular technology
and service or matter.
These definitions are general in nature and dont have any legal validity but was discussed
in the case of Indian Farmers Fertilizer Co-operative Ltd. vs. Commissioner of
170 Central Excise at CESTAT Delhi.
In this case it has been discussed that know- how as intellectual property would mean a Technology Transfer and
Acquisition
proprietary series of practical, non patented knowledge, derived from the owners
experience and tests, which is secret, substantial and identified. Thus, know-how as an
intellectual property is sometimes also referred to a trade secret which enables its user
to derive commercial benefit from it. A trade secret is a formula, practice, process,
design, instrument, pattern or compilation of information used by a business to obtain a
advantage over competitors within the same industry or profession. Such trade secrets
are sometimes referred to as confidential information. A person having know-how as a
trade secret would protect such confidential information by non- compete or non disclosure
contracts. Unlike patent or trade mark, the attribute of protection of confidential information
in the know-how gives perpetual monopoly in such secret information which does not
expire over a period of time as is usual for the protection in form of validity period
granted to patents and copyrights. Where trade secrets are recognized, the creator of
property regarded as trade secret is entitled to regard some knowledge as intellectual
property. A trade secret in sort of information, which is not generally known to the
relevant portion of the public that confers some sort of economic benefits on its holder
and which is the subject of reasonable efforts to maintain its secrecy. Trade secrets are,
however, not protected by law in the same manner as trademarks or patents. A significant
difference is that a trade secret is protected without disclosure of the secret. So long as
the owner of the trade secret can prove that reasonable efforts have been made to keep
the information confidential, the information remains a trade secret and generally remains
legally protected as such. However, where a trade secret owner has not exercised
reasonable effort at protecting the confidential information, there is a risk of loosing the
trade secret, even if a competitor obtains the information illegally. Know-how in the
nature of trade secret as an intellectual property would, therefore, be information including
a formula, pattern compilation, program device, method, technique or process that derives
independent economic value, actual or potential, from not being generally known to, and
not being readily ascertainable by other person who can obtain economic value from its
disclosure or use, and it is the subject of efforts that are reasonable under the
circumstances, to maintain its secrecy.
Import of Know-How
Import of know-how was exempted from import duty and a 5% cess was levied on all
payments made towards import of know how. This covers payments made towards
import of technology, payment made towards cost of drawings and designs in terms of
any foreign collaboration agreement, payment made to foreign collaborators or to any
other person for or in connection with deputation of technical personnel in India in terms
of any foreign collaboration agreement and any other payment towards import of
technology permitted by the Government. Department of Science and Technology is the
nodal Department concerning this Act. Although, no formal definition has been given in
the R&D Cess Act, 1986, the following definition can be considered appropriate:
Any proprietary series of practical, non patented knowledge and owners experience or
tests which is secret, substantial and identified in nature, when brought into India from
outside India.
Import of technology is always physical but it is not the only mode of import in relation to
import of know how. Import of know-how may be done through post, by sending physically
technical personal, thorough electronic modes like internet, telephone, fax etc.
Source: Shilpa Bhadoria and Sushil Simoliya, LLM students at NALSAR, Hyderabad.

171
Technology Management
7.4 IMPLICATIONS OF URUGUAY ROUND, AND WTO
7.4.1 Uruguay Round
The Uruguay Round was the 8th round of multilateral trade negotiations (MTN) conducted
within the framework of the General Agreement on Tariffs and Trade (GATT), spanning
from 1986-1993 and embracing 110 countries as "contracting parties". The Round
transformed the GATT into the World Trade Organization.
The Round came into effect in 1995 and has been implemented over the period to 2000
(2004 in the case of developing country contracting parties) under the administrative
direction of the newly created World Trade Organization (WTO). The Uruguay Round
Agreement on Agriculture, administered by the WTO, brings agricultural trade more
fully under the GATT. It provides for converting quantitative restrictions to tariffs and
for a phased reduction of tariffs. The agreement also imposes rules and disciplines on
agricultural export subsidies, domestic subsidies, and sanitary and phytosanitary (SPS)
measures.
It took seven and a half years, almost twice the original schedule. By the end, 123
countries were taking part. It covered almost all trade, from toothbrushes to pleasure
boats, from banking to telecommunications, from the genes of wild rice to AIDS
treatments. It was quite simply the largest trade negotiation ever, and most probably the
largest negotiation of any kind in history. At times it seemed doomed to fail. But in the
end, the Uruguay Round brought about the biggest reform of the world's trading system
since GATT was created at the end of the Second World War. And yet, despite its
troubled progress, the Uruguay Round did see some early results. Within only two years,
participants had agreed on a package of cuts in import duties on tropical products -
which are mainly exported by developing countries. They had also revised the rules for
settling disputes, with some measures implemented on the spot. And they called for
regular reports on GATT members' trade policies, a move considered important for
making trade regimes transparent around the world.
The Seeds of the Uruguay Round
The seeds of the Uruguay Round were sown in November 1982 at a ministerial meeting
of GATT members in Geneva. Although the ministers intended to launch a major new
negotiation, the conference stalled on agriculture and was widely regarded as a failure.
In fact, the work programme that the ministers agreed formed the basis for what was to
become the Uruguay Round negotiating agenda.
Nevertheless, it took four more years of exploring, clarifying issues and painstaking
consensus-building, before ministers agreed to launch the new round. They did so in
September 1986, in Punta del Este, Uruguay. They eventually accepted a negotiating
agenda that covered virtually every outstanding trade policy issue. The talks were going
to extend the trading system into several new areas, notably trade in services and
intellectual property, and to reform trade in the sensitive sectors of agriculture and textiles.
All the original GATT articles were up for review. It was the biggest negotiating mandate
on trade ever agreed, and the ministers gave themselves four years to complete it.
Two years later, in December 1988, ministers met again in Montreal, Canada, for what
was supposed to be an assessment of progress at the round's half-way point. The purpose
was to clarify the agenda for the remaining two years, but the talks ended in a deadlock
that was not resolved until officials met more quietly in Geneva the following April.
172
Trade Policy Review Mechanism Technology Transfer and
Acquisition
Despite the difficulty, during the Montreal meeting, ministers did agree a package of
early results. These included some concessions on market access for tropical products -
aimed at assisting developing countries - as well as a streamlined dispute settlement
system, and the Trade Policy Review Mechanism which provided for the first
comprehensive, systematic and regular reviews of national trade policies and practices
of GATT members. The round was supposed to end when ministers met once more in
Brussels, in December 1990. But they disagreed on how to reform agricultural trade and
decided to extend the talks. The Uruguay Round entered its bleakest period.
Despite the poor political outlook, a considerable amount of technical work continued,
leading to the first draft of a final legal agreement. This draft "Final Act" was compiled
by the then GATT director-general, Arthur Dunkel, who chaired the negotiations at officials'
level. It was put on the table in Geneva in December 1991. The text fulfilled every part
of the Punta del Este mandate, with one exception - it did not contain the participating
countries' lists of commitments for cutting import duties and opening their services markets.
The draft became the basis for the final agreement.
Over the following two years, the negotiations lurched between impending failure, to
predictions of imminent success. Several deadlines came and went. New points of major
conflict emerged to join agriculture: services, market access, anti-dumping rules, and the
proposed creation of a new institution. Differences between the United States and
European Union became central to hopes for a final, successful conclusion.
Blair House Accord
In November 1992, the US and EU settled most of their differences on agriculture in a
deal known informally as the "Blair House accord". By July 1993 the "Quad" (US, EU,
Japan and Canada) announced significant progress in negotiations on tariffs and related
subjects ("market access"). It took until 15 December 1993 for every issue to be finally
resolved and for negotiations on market access for goods and services to be concluded
(although some final touches were completed in talks on market access a few weeks
later). On 15 April 1994, the deal was signed by ministers from most of the 123 participating
governments at a meeting in Marrakesh, Morocco.
The delay had some merits. It allowed some negotiations to progress further than would
have been possible in 1990: for example, some aspects of services and intellectual property,
and the creation of the WTO itself. But the task had been immense, and negotiation-
fatigue was felt in trade bureaucracies around the world. The difficulty of reaching
agreement on a complete package containing almost the entire range of current trade
issues led some to conclude that a negotiation on this scale would never again be possible.
Yet, the Uruguay Round agreements contain timetables for new negotiations on a number
of topics. And by 1996, some countries were openly calling for a new round early in the
next century. The response was mixed; but the Marrakesh agreement did already include
commitments to reopen negotiations on agriculture and services at the turn of the century.
These began in early 2000 and were incorporated into the Doha Development Agenda in
late 2001.
7.4.2 What Happened to GATT
The WTO replaced GATT as an international organization, but the General Agreement
still exists as the WTO's umbrella treaty for trade in goods, updated as a result of the
Uruguay Round negotiations. Trade lawyers distinguish between GATT 1994, the updated
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Technology Management parts of GATT, and GATT 1947, the original agreement which is still the heart of GATT
1994. Confusing? For most of us, it's enough to refer simply to "GATT".
The Post-Uruguay Round built-in Agenda
Many of the Uruguay Round agreements set timetables for future work. Part of this
"built-in agenda" started almost immediately. In some areas, it included new or further
negotiations. In other areas, it included assessments or reviews of the situation at specified
times. Some negotiations were quickly completed, notably in basic telecommunications,
financial services. (Member governments also swiftly agreed a deal for freer trade in
information technology products, an issue outside the "built-in agenda".)
The agenda originally built into the Uruguay Round agreements has seen additions and
modifications. A number of items are now part of the Doha Agenda, some of them updated.
There were well over 30 items in the original built-in agenda. This is a selection of
highlights:
1996
l Maritime services: market access negotiations to end (30 June 1996, suspended to
2000, now part of Doha Development Agenda)
l Services and environment: deadline for working party report (ministerial conference,
December 1996)
l Government procurement of services: negotiations start
1997
l Basic telecoms: negotiations end (15 February)
l Financial services: negotiations end (30 December)
l Intellectual property, creating a multilateral system of notification and registration
of geographical indications for wines: negotiations start, now part of Doha
Development Agenda
1998
l Textiles and clothing: new phase begins 1 January
l Services (emergency safeguards): results of negotiations on emergency safeguards
to take effect (by 1 January 1998, deadline now March 2004)
l Rules of origin: Work programme on harmonization of rules of origin to be completed
(20 July 1998)
l Government procurement: further negotiations start, for improving rules and
procedures (by end of 1998)
l Dispute settlement: full review of rules and procedures (to start by end of 1998)
1999
l Intellectual property: certain exceptions to patentability and protection of plant
varieties: review starts
2000
174 l Agriculture: negotiations start, now part of Doha Development Agenda
l Services: new round of negotiations start, now part of Doha Development Agenda Technology Transfer and
Acquisition
l Tariff bindings: review of definition of "principle supplier" having negotiating rights
under GATT Art 28 on modifying bindings
l Intellectual property: first of two-yearly reviews of the implementation of the
agreement 2002
l Textiles and clothing: new phase begins 1 January
2005
l Textiles and clothing: full integration into GATT and agreement expires 1 January
7.4.3 WTO
The World Trade Organisation (WTO) superseded the General Agreement on Trade &
Tariff (GATT) on January 1st, 1995. It is an international, multilateral organisation which
sets the rules for the global trading system and resolves disputes between its member
states, all of whom are signatories to its various agreements.
WTO headquarters is located on Rue de Lausanne 154, CH-1211 Geneva 21, Switzerland.
Pascal Lamy is the current Director-General, taking over from the previous Director-
General Supachai Panitchpakdi on September 1, 2005. He is the fifth Director-General
of the WTO. His appointment is for a four-year term. Dr Harsha Vardhana Singh is the
Deputy Director General of WTO. It had 151 members as on 27 July 2007. All WTO
members are required to grant one another most favoured nation status, such that (with
some exceptions) trade concessions granted by a WTO member to another country
must be granted to all WTO members (WTO, 2004c). Hitherto, it has proved both boon
and bane to several countries. WTO has been a major target for protests by the anti-
globalisation movement since its inception in 1995.
History
World War Two saw many political and economic changes. The Bretton Woods
Conference held in 1944 proposed the creation of an International Trade Organisation
(ITO). The objective of ITO was to establish rules and regulations for trade between
countries. The ITO charter was agreed at the UN Conference on Trade and Employment
in Havana in March 1948. It was, however, blocked by the U.S. Senate (WTO, 2004b)1.
As per some historians, the failure may have resulted from fears within the American
business community. They thought that the International Trade Organisation could be
used to regulate, rather than liberate, big business (Mira Wilkins, 19972).
Notwithstanding, the General Agreement on Tariffs and Trade (GATT) survived - It was
the only element of the ITO to have survived. Seven rounds of negotiations occurred
under GATT before the eighth round the Uruguay Round concluded in 1995 with the
establishment of the WTO which replaced GATT. The GATT principles and agreements
were adopted by the WTO, which was charged with administering and extending them.
Unlike the GATT, the WTO has a substantial institutional structure.
Mission
The WTO aims to encourage smooth and free trade by promoting lowering of trade
barriers and providing a platform for the negotiation of trade and to resolve disputes
between member nations, when they arise. The goal is to help producers of goods and
services, exporters, and importers conduct their business.
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Technology Management Principles of the Trading System
Trade rather than Aid has been the slogan of WTO for development. In pursuance
thereof WTO follows these fundamental principles of trading:
1. A trading system should be discrimination-free in a sense that a country cannot
favour another country or discriminate against foreign products or services.
2. A trading system should be free where there should be little trade barriers (tariffs
and non-tariff barriers).
3. A trading system should be predictable where foreign companies and governments
can be sure that trade barriers would not be raised and markets will remain open.
4. A trading system should be more competitive.
5. A trading system should be more accommodating for less developed countries,
giving them more time to adjust, greater flexibility, and more privileges.
Structure
All WTO members may participate in all councils, committees, etc., except Appellate
Body, Dispute Settlement panels, and plurilateral committees.
Highest level: Ministerial Conference
The topmost decision-making body of the WTO is the Ministerial Conference, which
has to meet at least every two years. It brings together all members of the WTO, all of
which are countries or customs unions. The Ministerial Conference can take decisions
on all matters under any of the multilateral trade agreements.
Second Level: General Council
The daily work of the ministerial conference is handled by three groups The General
Council, The Dispute Settlement Body and The Trade Policy Review Body.
1. The General Council: The WTOs highest-level decision-making body in Geneva,
meets regularly to carry out the functions of the WTO. It has representatives
(usually ambassadors or equivalent) from all member governments and has the
authority to act on behalf of the ministerial conference which only meets about
every two years. The council acts on behalf of the Ministerial Council on all WTO
affairs.
2. The Dispute Settlement Body: Made up of all member governments, usually
represented by ambassadors or equivalent.
3. The Trade Policy Review Body (TPRB): The WTO General Council meets as
the Trade Policy Review Body to undertake trade policy reviews of Members
under the TRPM. The TPRB is thus open to all WTO Members.
Third Level: Councils for Trade
The Councils for Trade work under the General Council. There are three councils -
Council for Trade in Goods, Council for Trade-Related Aspects of Intellectual Property
Rights, and Council for Trade in Services - each council works in different fields. Apart
from these three councils, six other bodies report to the General Council, reporting on
issues such as trade and development, the environment, regional trading arrangements
176
and administrative issues.
1. Council for Trade in Goods: The workings of the General Agreement on Tariffs Technology Transfer and
Acquisition
and Trade (GATT), which covers international trade in goods, are the responsibility
of the Council for Trade in Goods. It is made up of representatives from all WTO
member countries.
2. Council for Trade-Related Aspects of Intellectual Property Rights (TRIPS):
Information on intellectual property in the WTO, news and official records of the
activities of the TRIPS Council, and details of the WTOs work with other
international organisations in the field.
3. Council for Trade in Services: The Council for Trade in Services operates under
the guidance of the General Council and is responsible for overseeing the functioning
of the General Agreement on Trade in Services (GATS). Its open to all WTO
members, and can create subsidiary bodies as required.
Fourth Level: Subsidiary Bodies
There are subsidiary bodies under each of the three councils.
1. The Goods Council: Subsidiary under the Council for Trade in Goods. It has 11
committees consisting of all member countries, dealing with specific subjects such
as agriculture, market access, subsidies, anti-dumping measures and so on.
Committees include the following:
v Information Technology Agreement (ITA) Committee
v State Trading Enterprises
v Textiles Monitoring Body - Consists of a chairman and 10 members acting
under it
v Groups dealing with notifications - process by which governments inform the
WTO about new policies and measures in their countries.
2. The Services Council: This is a subsidiary under the Council for Trade in Services
which deals with financial services, domestic regulations and other specific
commitments.
3. Dispute Settlement panels and Appellate Body: This is a subsidiary under the
Dispute Settlement Body to resolve disputes and the Appellate Body to deal with
appeals.
Other Committees
l Committees on:
v Trade and Environment
v Trade and Development (Subcommittee on Least-Developed Countries)
v Regional Trade Agreements
v Balance of Payments Restrictions
v Budget, Finance and Administration
l Working parties on
v Accession 177
Technology Management l Working groups on
v Trade, debt and finance
v Trade and technology transfer
v Trade negotiations
While most international organisations operate on a one country, one vote or even a
weighted voting basis, many WTO decisions, such as adopting agreements (and revisions
to them) are officially determined by consensus of all member states. The advantage of
consensus decision-making is that it encourages efforts to find the most widely acceptable
decision. Main disadvantages include large time requirements and many rounds of
negotiation to develop a consensus decision, and the tendency for final agreements to
use ambiguous language on contentious points that make future interpretation of treaties
difficult.
In reality, WTO negotiations proceed not by consensus of all members, but by a process
of informal negotiations between small groups of countries. Such negotiations are often
called Green Room negotiations (after the colour of the WTO Director-Generals
Office in Geneva), or Mini-Ministerials, when they occur in other countries. These
processes have been regularly criticised by many of the WTOs developing country
members which are often totally excluded from the negotiations.
Richard Steinberg (2002)3 argues that although the WTOs consensus governance model
provides law-based initial bargaining, trading rounds close through power-based bargaining,
favouring Europe and the United States, and may not lead to Pareto improvement. The
most notable recent failures of consensus, at the Ministerial meetings at Seattle (1999)
and Cancn (2003), were due to the refusal of some developing countries to accept
proposals.
The WTO began the current round of negotiations, the Doha round, at the Fourth
Ministerial Conference in Doha, Qatar in November 2001. The talks have been highly
contentious and agreement has not been reached, despite continuing talks at Fifth
Ministerial Conference in Cancn in 2003 and at the Sixth Ministerial Conference in
Hong Kong on December 13 - December 18, 2005.
Dispute Resolution
Apart from hosting negotiations on trade rules, the WTO also acts as an arbiter of
disputes between member states over its rules. Unlike most other international organizations,
the WTO has significant power to enforce its decisions through the authorisation or
trade sanctions against members which fail to comply with its decisions.
Member states can bring disputes to the WTOs Dispute Settlement Body if they believe
another member has breached WTO rules.
Disputes are heard by a Dispute Settlement Panel, usually made up of three trade officials.
The panels meet in secret and are not required to alert national parliaments that their
laws have been challenged by another country. If decisions of the Dispute Settlement
Body are not complied with, it may authorise retaliatory measures - trade sanctions -
in favour of the member(s) which brought the dispute. While such measures are a strong
mechanism when applied by economically powerful states like the United States or the
European Union, when applied by economically weak states against stronger ones, they
can often be ignored. This has been the case, for example, with the March 2005 Appellate
178 Body ruling in case DS 267, which declared US cotton subsidies illegal.
Membership Technology Transfer and
Acquisition
A world map of WTO participation. Green indicates members, yellow/orange for
observers, and grey indicates countries that are neither. The countries of the European
Communities ( EU) are dually represented collectively and individually.

Source: http://en.wikipedia.org

Figure 7.1: WTP Member States

The WTO has 151 members (76 members at its foundation and a further 75 members
joined over the following ten years). The 25 states of the European Union are represented
also as the European Communities. Some non-sovereign autonomous entities of member
states are included as separate members.
The shortest accession negotiation was that of the Kyrgyz Republic, lasting 2 years and
10 months. The longest was that of China, lasting 15 years and 5 months. Russia, having
first applied to join GATT in 1993, is still in negotiations for membership.
A number of non-members have been observers (31) at the WTO and are currently
negotiating their membership: Algeria, Andorra, Azerbaijan, Bahamas (process frozen in
2001), Belarus, Bhutan, Bosnia and Herzegovina, Cape Verde, Equatorial Guinea
(expected to start membership negotiations in 2007 or earlier), Ethiopia, Holy See (Vatican;
special exception from the rules allows it to remain observer without starting negotiations),
Iran, Iraq, Kazakhstan, Lao Peoples Democratic Republic, Lebanese Republic, Libya,
Russian Federation, Samoa, Sao Tome and Principe, Serbia and Montenegro (each republic
is applying for separate membership), Seychelles (negotiations frozen since 1998), Sudan,
Tajikistan, Ukraine, Uzbekistan, Vanuatu (accession agreed in 2001, but not ratified by
Vanuatu itself), Vietnam and Yemen.
Iran first applied to join the WTO in 1996, but the United States, accusing Tehran of
supporting international terrorism, blocked its application 22 times. The U.S. said in March
that it would drop its veto on a start to Irans accession negotiations. The U.S. has chosen
not to block Irans latest application for membership as part of a nuclear-related deal.
Syria first applied to join the WTO in October 2001, then again in January 2004 and
September 2005. Its application for membership is currently still pending, waiting for
WTO General Council approval to start negotiations.
The following states (15) and territories (2) so far have no official interaction with the
WTO: the states of Eritrea, Somalia, Liberia, Turkmenistan, North Korea, Monaco, San 179
Technology Management Marino, East Timor, Comoros, Nauru, Tuvalu, Palau, Kiribati, Micronesia, Marshall Islands
and the territories of Western Sahara, Palestine.
Agreements
The WTO oversees about 30 different agreements that have the status of international
legal texts. Member countries must sign and ratify all WTO agreements on accession. A
list of WTO agreements can be found here. A discussion of some of the most important
agreements is as follows.
Agreement on Agriculture (AoA)
The AoA came into effect with the establishment of the WTO at the beginning of 1995.
The AoA has three central concepts, or pillars: domestic support, market access and
export subsidies.
Domestic Support
The first pillar of the AoA is domestic support. The AoA structures domestic support
(subsidies) into three categories or boxes: a Green Box, an Amber Box and a Blue
Box. The Green Box contains fixed payments to producers for environmental programmes,
so long as the payments are decoupled from current production levels. The Amber
Box contains domestic subsidies that governments have agreed to reduce but not eliminate.
The Blue Box contains subsidies that can be increased without limit, so long as payments
are linked to production-limiting programmes.
The AoAs domestic support system currently allows Europe and the USA to spend
$380 billion every year on agricultural subsidies alone. It is often still argued that subsidies
are needed to protect small farmers but, according to the World Bank, more than half of
EU support goes to 1% of producers while in the US 70% of subsidies go to 10% of
producers, mainly agri-businesses. The effect of these subsidies is to flood global markets
with below-cost commodities, depressing prices and undercutting producers in poor
countries a practice known as dumping.
Market Access
Market access is the second pillar of the AoA, and refers to the reduction of tariff (or
non-tariff) barriers to trade by WTO member-states. The 1995 AoA required tariff
reductions of:
l 36% average reduction by developed countries, with a minimum per tariff line
reduction of 15% over five years.
l 24% average reduction by developing countries with a minimum per tariff line
reduction of 10% over nine years.
Least Developed Countries (LDCs) were exempted from tariff reductions, but either
had to convert non - tariff barriers to tariffs - a process called tariffication - or bind
their tariffs, creating a ceiling which could not be increased in future.
Export Subsidies
Export subsidies is the third pillar of the AoA. The 1995 AoA required developed
countries to reduce export subsidies by at least 35% (by value) or by at least 21% (by
volume) over the five years to 2000.
The other main agreements are:
180
l General Agreement on Trade in Services (GATS)
l Trade-Related Aspects of Intellectual Property Rights (TRIPs) Agreement Technology Transfer and
Acquisition
l Sanitary and Phyto-Sanitary (SPS) Agreement
l Agreement on Technical Barriers to Trade (TBT)
Ministerial Conferences
1st Ministerial Conference
The inaugural ministerial conference was held in Singapore in 1996. Disagreements
between largely developed and developing economies emerged during this conference
over four issues initiated by this conference, which led to them being collectively referred
to as the Singapore issues.
2nd Ministerial Conference
One of the significant result of this conference, held at WTO (Geneva, 18-20 May
1998) was that the ministers, through their main Declaration, paved the way for their
WTO Ambassadors to prepare for more significant negotiations in the next 18 months
that could lead to further liberalisation, and to new issues being pushed onte WTO6
3rd Ministerial Conference
The third conference ended in failure, with massive demonstrations and riots drawing
worldwide attention.
4th Ministerial Conference
The Fourth WTO Ministerial Conference was held in Doha, Qatar from 9 to 14 November
2001
5th Ministerial Conference
The ministerial conference was held in Cancn, Mexico, aiming at forging agreement on
the Doha round. An alliance of 22 southern states, the G20 (led by India, China and
Brazil), resisted demands from the North for agreements on the so-called Singapore
issues and called for an end to agricultural subsidies within the EU and the US. The
talks broke down without progress.
6th Ministerial Conference
The sixth WTO Conference Ministerial was held in Hong Kong from December 13 -
December 18, 2005. It was considered vital if the four-year-old Doha Development
Agenda negotiations were to move forward sufficiently to conclude the round in 2006.
In this meeting, countries agreed to phase out all their agricultural export subsidies by the
end of 2013, and terminate any cotton export subsidies by the end of 2006. Further
concessions to developing countries included an agreement to introduce duty free, tariff
free access for goods from the Least Developed Countries, following the Everything
But Arms initiative of the European Union - but with up 3% of tariff lines exempted.
Other major issues were left for further negotiation to be completed by the end of 2006.

7.5 BARGAINING PROCESS

According to Sylvester O. Monye, technology is, perhaps, the most desirable attribute of
multinational enterprises (MNEs) to the less developed countries (LDCs) and constitutes
their primary source of bargaining power. Similarly, the attractiveness of a market to the
181
MNEs constitutes LDCs" principal source of negotiating strength in dealing with MNEs
Technology Management on such matters as the conditions for investment and technology transfer. What is unclear
is how these independent variables are most successfully utilized. There is need to identify
and examine the bargaining power variables and their level of influence in technology
transfer negotiations. The result shows that though technology is always a source of
negotiating strength to MNEs, locational attractiveness may not always be a significant
source of bargaining power to LDCs in all negotiations with multinational enterprises.
The abstract and proprietary nature of technology creates an atmosphere of mystery
about it and can make its transfer complex; defining it can be just as difficult. This is
explained in part by the fact that its everyday uses have tended to restrict the meaning to
the context of advanced engineering. Technology has been defined in various forms to
include capital goods that yield higher rate of output per unit of employed labor, capital,
or raw materials; intangible information or knowledge; management and organizational
techniques. Value also is inherent in future improvements and innovations to both the
specific technology and the surrounding support activities. Thus, the transfer's nature,
motive, and manner are the issue of contention. Evidence abounds in literature that
technology plays a key role in a nation's economic development consequently, it represents
the most desirable attribute of MNEs. It is, therefore, not surprising that technology
provides multinational enterprises with considerable bargaining power. The perceived
magnitude and nature of MNEs' power and influence can be disproportionate to their
actual power. Likewise, the perceived effect of technology in a host nation can be more
important than its actual value. Successful transfer of technology takes place when both
the transferor and the transferee need and want the transfer. For the transferor, the
extent of the motivation depends on its corporate desire to achieve, expand, or defend an
advantage. Gaining or retaining access to materials, markets, manpower, or other
productive resources can be accomplished by instituting a presence in a host country.
7.5.1 Modelling the Bargaining Process: The Conventional Approach
In the bargaining process the focus remains on the profitability of the TNC subsidiary
and the desire of the TNC to maximize this. The analysis relates the amount of investment
carried on by the TNC to the rate of return it receives. The more the investment is
carried out, the lower the marginal productivity of that investment. There is a smooth
continuous, relationship between the two. For any level of investment, there is a unique
rate of return. If the government acts to reduce the rate of return - for example through
increased taxation or environmental controls - then as a consequence, investment must
decline. Policy makers thus face a smooth trade-off between imposing profit-affecting
measures and effecting reductions in the level of TNC investment.
7.5.2 Modelling the Bargaining Process: Streeten's Approach
Streeten does note agree that there is a smooth trade-off relationship between investment
and rate of return. In fact, Streeten argues, for any given level of investment there in
fact exists a range of rates of return that the TNC would be willing to accept. For
Streeten, the concept of 'returns' extends beyond the income representing the reward to
capital. It also includes remuneration for a wide range of technical and managerial
knowledge, advertising and marketing know-how and miscellaneous forms of technology
transfer. The lower limit of the range is set by "the special monopolistic or oligopolistic
'advantage' enjoyed by the MNC. The upper limit of the range is set by the costs to the
host government of alternative access to this advantage or the cost of doing without it.
The bargaining range itself can be interpreted as spanning the set of points in which the
rate of return, given the level of investment, is acceptable to both the host country
government and the TNC. Obviously, the TNC would prefer rates towards the top end
182 of the range while the LDC government would prefer rates towards the bottom end.
The key implication of Streeten's model is that there is considerable scope for bargaining Technology Transfer and
Acquisition
between TNCs and LDCs and that the bargaining will centre on a broad concept of the
'rate of return'.

7.6 TRANSFER OPINION

Continuous monitoring of technology transfer is essential to ensure quick absorption and
adaptation. The monitoring process could be undertaken at regular intervals, preferably
by the concerned product head. Top management can call for periodic status reports
about technology transfer/absorption from product heads. To improve coordination,
periodic joint meetings with collaborators could also be undertaken. On the basis of
experience gained, a suitable technology monitoring report could be finalised (S J Patil).
Table 7.1: Format for Technology Transfer Monitoring Report
1. RESPONSIBILITY

The Chairman of the Product Committee to review this quarterly status report and send it to
Director (Tech) for information of Corporate Management.

2. BASIS

a Technology transfer plan for the Product is to be prepared.

b Milestone activities to be monitored.

3. FORMAT

i. Name of Product/System

ii. Range covered

iii. Name of the collaborator

iv. Collaboration period from to

4. STATUS IN VARIOUS AREAS

I. Training: Total agreed man days/man-months, utilisation till date:

a Design

b Technology/manufacture

c Quality

d Erection and commissioning

e Any other area

II. Documentation: Agreed nos./Quantity to be supplied: Actual released for

manufacture/ field work:

a Design

b Manufacturing technology and processes

c Quality

d Erection & commissioning

e Operation and maintenance

f Others
Contd... 183
Technology Management
III. Facilities:

Proposed:

Commissioned as on date:

IV. Indigenisation Plan (Components & Sub-assemblies) Year-wise achievements:

Proposed:

Actual:

V. Indigenisation Plan (Raw-materials)

Year-wise achievements:

Proposed:

Actual:

VI. Present Positioning of Trained Executives:

VII. Evaluation of the Benefits from the Collaboration:

Scale: (Min) (Max)

0___________________0

Enter scale value

1. Ability to trouble shoot, solve problems/overcome deficiencies by ourselves ()

2. Ability to design and develop variants/upgrade the product or the system ()

3. Assimilation and adoption of computer programmes for basic design of

components and sub-systems ()

4. Assimilation and adoption of quality control procedures in: ()

Manufacture at our Works ()

Bought-out items ()

Erection & commissioning ()

5. Ability to undertake connected R&D for spin-off products/systems development ( )

6. Absorption of basic know how ()

Know why ()

7. Ability to bridge the technology gap in the respective areas between

ourselves and leaders abroad in the next 5-10 years by ourselves ()

8. Comparison of our market competence in India ()

9. Comparison of our market competence in world market ()

10. Confidence level in handling the product/system independently after the

expiry of the collaboration agreement ()

VII. Any Specific Point(s) as Applicable to the Product System:

Remarks: Problems faced in indigenisation of design/manufacture in BHEL/India and

indigenisation of raw materials.

Note: Give specific examples/cases to illustrate views expressed vide Points 1 to 7

above.
184
 Technology Transfer and
7.7 MOU Acquisition

A memorandum of understanding (MOU or MoU) is a nonbinding document signed by

parties interested in pursuing a comprehensive agreement for the transfer of technology. It
is a document describing a bilateral or multilateral agreement between parties. It defines
specific technical areas of interest and the ground rules for interaction and discussion
between the parties. It may be used as a confirmation of agreed upon terms when an oral
agreement has not been reduced to a formal contract. It may also be a contract used to set
forth the basic principles and guidelines under which the parties will work together to
accomplish their goals. It expresses a convergence of will between the parties, indicating
an intended common line of action. It most often is used in cases where parties either do
not imply a legal commitment or in situations where the parties cannot create a legally
enforceable agreement. It is a more formal alternative to a gentlemen's agreement.
In some cases, depending on the exact wording, MoUs can have the binding power of a
contract; as a matter of law, contracts do not need to be labeled as such to be legally
binding. Whether or not a document constitutes a binding contract depends only on the
presence or absence of well-defined legal elements in the text proper of the document
(the so-called "four corners"). For example, a binding contract typically must contain
mutual consideration-a legally enforceable obligations of the parties, and its formation
must take place free of the so-called real defenses to contract formation (fraud, duress,
lack of age or mental capacity, etc.).
It is very pertinent to draw here a distinction between a contract and a sponsored
agreement. Here the question arises as to why go to the time and effort of drafting a
formal contract for your collaborative research agreement when a Memorandum of
Understanding (MOU) will do just as well. Whether there is a legal difference between
a contract and an MOU? What is the legal difference between a Memorandum of
Understanding and a Memorandum of Agreement? Why are standard contract terms
so important? The answer to all these is that - a contract is an agreement between two
or more persons that creates an obligation to do or not to do a particular thing.
The purpose of a contract is to document each party's obligation and to allocate and
minimize each party's risks during the performance of the agreement. The contract
includes standard terms and conditions that serve as the skeleton of the contract and a
statement of work that serves as the substance of the contract. In general, the standard
terms and conditions can support any statement of work, with only minor modifications
to some of the terms. The contract also includes a Term and Termination provision that
sets forth the length of the agreement and each party's rights to terminate the agreement
under certain conditions.
The MoUs are encouraged for short term interactions to set the ground rules for future
collaboration that are more formal and binding.

Check Your Progress

Explain the various ways through which transfer of technology could be affected
giving relevant examples in support of your argument(s).

7.8 LET US SUM UP

Technology transfer is a key issue in today's global environment. It is the transmission of
innovations arising in one firm or country to others. Technology passes from the innovator 185
Technology Management to one or more recipient, who thus avoids the need to conduct independent research, or
to develop projects, or to test and evaluate the outcome of research.
The concept of technology transfer is used to describe the process of formally transferring
new discoveries and innovations that result from university research into the commercial
sector. One way that universities transfer their technology is through the patenting and
licensing of new inventions. It has helped to spawn new businesses, create industries,
and open new markets. Moreover, it has led to new products and services that improve
our quality of life. From new cancer treatments to faster modems, from environmentally
friendly metal processing to beautiful flowering plants, technology transfer from academic
institutions is enhancing the way we live and work."
Besides this, technology transfer often provides a stimulating experience for academic
researchers and the opportunity to interact with the commercial sector can provide useful
insights in research direction and management, and can provide an opportunity for student
exposure to non-academic career paths. Finally, technology transfer can provide direct
financial benefit to the inventors, as well as to their departments and institutions.
Memorandum of Understanding is a nonbinding document signed by parties interested in
pursuing a comprehensive agreement for the transfer of technology. The MOU defines
specific technical areas of interest and the ground rules for interaction and discussion
between the parties. These are encouraged for short term interactions to set the ground
rules for future collaboration that are more formal and binding.

7.9 KEY TERMS

Technology Transfer: The transmission of knowledge from those who possess it to
those who do not.
Licensing: An agreement in which one organisation gives limited rights to another to
use certain of its assets such as expertise, patents, copyrights or equipment, for an
agreed upon fee or royalty.
Joint Venture: A joint venture is an agreement involving two or more organisations that
arrange to produce a product or service jointly.
Wholly Owned Subsidiary: A wholly owned subsidiary is an operation on foreign soil
that is totally owned and controlled by a company with headquarters outside the host
country.
Direct Investment: The establishment of operating facilities in a foreign country.
Franchising: An arrangement where a parent organisation (the franchiser) grants other
companies or individuals (franchisees) the right to use its trademarked name and to
produce and sell its goods or services.
Alliance: Involves agreeing with other organisations to pool, physical, financial and human
resources to achieve common goals.
Profit Centre: A profit centre is an organisational unit that is accountable for both the
revenues generated by its activities and the costs of those activities.
Protectionism: The mechanisms designed and used to help a home-based industry or
firms to avoid (or reduce) potential (or actual) competitive threats from abroad.
186
Tariff: It is a government tax on goods or services entering the country. Technology Transfer and
Acquisition
Quota: It is a restriction on the quantity of a countrys imports (or sometimes on its exports).
Subsidy: A direct or indirect payment by a government to its countrys firms to make
selling or investing cheaper for them and thus more profitable.
Cartel: A cartel is an alliance of producers engaged in the same type of business which
is formed to limit or eliminate competition and control production and prices.
Embargo: A government prohibition of trade especially in a particular product.
Outsourcing: Buying or hiring from outside suppliers.
Collaborator: A collaborator is a person or a company that works with your company.
Value Chain: Chain of activities and relationships by which a company brings in materials,
creates a good or service, markets it and provides services after a sale is made. Each
step creates more value for the customer.

7.10 TEST QUESTIONS

1. Explain why technology acquisition is important from the standpoint of a company.
2. Outline the various modes of technology transfer. Is any one mode the best? Briefly
explain the policy of government regarding technology transfer.
3. Do you think a liberal policy on acquisition of imported technology would help
improve the indigenous growth of technology?
4. What measures at the enterprise level are essential for successful absorption of
technology in India?
5. Write a short essay on the eminent technology scenario in India and offer some
constructive suggestions to improve the situation.

7.11 SUGGESTED READINGS

Bowonder B. and Miyake T., Technological forecasting, Methodologies and Case
Studies.
Gerard H. Gaynor, Handbook of Technology Management, Mc-GrawHill.
Noori H & Radford R.W., Reading and cases in the Management of New Technology,
Englewood Cliffs, N.J. Prentice Hall, 1990.
www.wikipedis.org
Vivek Mittal, Business Environment, Excel Books, New Delhi.

187
Technology Management
LESSON

8
TECHNOLOGY ADOPTION AND PRODUCTIVITY
CONTENTS
8.0 Aims and Objectives
8.1 Introduction
8.2 Technology Adoption - Human Interactions
8.3 Organisational Design
8.4 Organisational Redesign
8.5 Organisational Reengineering
8.6 Organisational Restructuring
8.7 Technology Productivity
8.8 Let Us Sum Up
8.9 Key Terms
8.10 Test Questions
8.11 Suggested Readings

8.0 AIMS AND OBJECTIVES

After studying this lesson, you will be able to explain:
1. The relationship between technology adoption and productivity.
2. Technology adoption and human interactions.
3. The organisational restructuring and reengineering process.
4. The concept of technology productivity.

8.1 INTRODUCTION
We are living in the era of globalization, economic liberalization and technological
innovation that are affecting all facets of life; for example, industries, education,
commerce and entertainment. The management of information is now of vital
importance for any business. There are now tremendous attempts to revolutionize
Industries using information technology (IT). In the growing knowledge-based economy,
firms need to produce required knowledge workers for economic development in the
21st century. The lesson analyses the importance of new technology; for example,
Electronic Commerce (E-Commerce) for improving productivity and benchmarking in
an organization. Technological development offers new possibilities to make people's
daily lives more healthy, safe, understandable, independent, fun and comfortable. New
Technologies provide us for instance with energy friendly and sustainable solutions in
188 order to improve the environment in which we live. It can also provide tools for elderly
people, so they can live longer on their own. Further, it provides us with new means of Technology Adoption and
Productivity
communication and new ways of entertainment.

Since productivity and technology choice are jointly determined, a single-equation

approach to determine whether productivity affects technology adoption is subject to
simultaneity bias. Since the system of equations contains both continuous and discrete
endogenous variables, generalized probity is used. Changes in technology are the only
source of permanent increases in productivity, but a number of transient factors can
affect both true and "measured" productivity. For example, workers may work harder
during periods of high demand and firms may use their capital assets more intensively
by running factories for extra shifts; both factors can lead measured productivity to be
too high relative to actual technological progress. Similarly, during periods of high
demand, productivity can rise because firms take advantage of increasing returns to
scale; the authors argue that this effect is not permanent and should be discounted
when measuring long-run technical change.

8.2 TECHNOLOGY ADOPTION - HUMAN

INTERACTIONS
The process of adopting a new technology is often very costly due to a number of
reasons. The new machines need to be purchased and often the technology, as in the
case of a CNC machine, is a specific asset; employees need to be trained to operate the
new technology; if there are network effects then complementary machines need to be
updated or replaced; if operation needs to be shut down for installation there will be a
cost from lost output.

In the modern world where demand is uncertain, firms are likely to be unsure about
whether or not they can recoup the cost of adopting the new technology, or how long it
may take to recover the cost. As a result, it might not be worthwhile for them to adopt
even if the technology has the potential of improving productivity or product quality. In
the presence of customer commitment, however, firms can more accurately predict the
demand for their product and the profit from production, and this gives them incentives
to adopt a technology if it is profitable for them to do so. Helper, in her paper, proxies for
customer commitment by the length of contract between the automotive supplier and
their customer, and argues that customer commitment is important both directly and
indirectly through its interaction with market share. It directly affects adoption by providing
suppliers guaranteed demand that is ensured by contracts. It indirectly affects adoption
through market power since customers in a highly concentrated market do not have
many alternative sources of supply and as a result customers tend to stay with the firm.

The contribution of new technology to economic growth can only be realized when and
if the new technology is widely diffused and used. Diffusion itself results from a series
of individual decisions to begin using the new technology, decisions which are often the
result of a comparison of the uncertain benefits of the new invention with the uncertain
costs of adopting it.

Today, it is not the raw material or geographical proximity to the market which decides
the location of a unit, but the availability of human resources which now days play a
decisive role in settling down on the location of any establishment. Today ,when research, 189
Technology Management new product development, economies of scale, low production cost are the mantra to
success, trained and skilled human resource have become the critical success factors
for every industry.

But in developing nations like India, the state plays a critical role in developing human
resources as at the time of independence, the private sector was not in a position to
invest in higher and technical education. Unlike developed nations, the masses of India
were and still are not in a position to afford higher technical education. This is the reason
that the state invested heavily in higher technical education established premier education
like IITs, IIMs, IVRIs, AIMS, BHU and other universities.

Recently, Dr. Manmohan Singh, the Prime Minister of India announced an investment of
Rs 100 crore in a university in Bangalore to develop it as research house in science. Not
only this, thanks to Nehru India retained English as a medium of instruction in education.
Because of these efforts of the State, India is justifiably proud of its human resources .
Today many businesses such as BPO, software, electronics, are flourishing in India
because of its human resources and India is becoming a manufacturing hub for mobile
phones, pharmaceuticals, fundamental research etc. Technical and knowledge Level of
HR is also a critical input for the industry and the State plays a vital role in influencing
and deciding this.

8.3 ORGANISATIONAL DESIGN

8.3.1 Organisational Design
The process of developing an organization structure is sometimes referred to as
organization design. Organizational design is the process of constructing and adjusting
an organization's structure to achieve its goals. In designing organization structures,
what factors do managers need to consider? Alfred D Chandler in his book "Strategy
and Structure" mentions that major companies follow a similar pattern of strategy
development and then structural change, rather than the reverse. He is of the opinion
that organizations often change their strategies in order to better utilize their resources
to fuel growth. The changes in strategy then lead to management difficulties because
the current structures do not fit the new strategies. Unless organizations subsequently
make adjustments in structure, the new strategies cannot realize their potential and
serious inefficiencies will result.

8.3.2 Factors Influencing Organization Design

Chandler's research has helped establish the fact that there is an important connection
between strategy and the type of organization structure that is needed to reach
organizational goals effectively and efficiently. At the same time, the effectiveness of
particular types of organization structure also is influenced by certain factors like

l The dominant type of technology used.

l The organizations size.

l Organizational goals, etc.

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These components and their relationship to organizational structure are shown in figure Technology Adoption and
Productivity
8.1 below:

Contingency Factors:
Technology
Size
Environment

Organization
STRATEGY Structure: Organizational
Functional Goals:
Divisional (Efficiency and
Hybrid effectiveness)
Matrix

Structural Methods for

Promoting Innovation:
Roles
Reservation
Differentiation
Transfer Processes

Source: Kathryn M Bartol and David C Martin, "Management", McGraw Hill Inc, New York (1991), page 371.

Figure 8.1: Major Components Influencing the Design of Effective

Organization Structure
8.3.3 The Design Response
Henry Mintzberg identifies two dimensions on which effective structure depends
regulation and sophistication.
(i) Regulation: Regulation refers to the extent to which machinery and equipment
control the employee's work. Mintzberg suggests that a more regulating technology
calls for a more mechanistic structure. The more routine the technology, the less
the need for flexibility, since responses to technology can be predetermined and
non-variant. The less routine the technology, the greater the need for flexibility.
(ii) Sophistication: Sophistication describes the complexity or intricacy of the
technology. As the technical system increases in sophistication, the organization
requires an increasingly elaborate administrative structure, more support staff who
have decision-making responsibilities and more integrating and linking devices.
Decreasing sophistication calls for no specific structural provision.
Effective organizational structures buffer or protect the technology from environmental
influences or disturbances. As organizations become more automated, they require
increasing rules and regulations, centralized control, and support staff as a way of buffering
the technology. Organizational design must respond to the complexities created by new
technologies.

191
Technology Management 8.3.4 Contingency Factors Effecting Organization Structure
The classical theorists attempted to develop the ideal organization structure:
l Henri Fayol offered his ideas about unity of command and the scalar chain.
l Max Weber provided some concepts such as formalized rules and regulations.
Still, the one best way to organize proved elusive. Gradually, the contingency theory
began to emerge which came to recognize that the best structure for a given organization
depends on contingency factors such as:
1. Technology: Technology is the knowledge, tools, equipment and work techniques
used by an organization in delivering its product or service. Different organizations
require different structures because they use different technology. The two critical
aspects of technology are:
(a) Technological Complexity: British sociologist Joan Woodward and her team
conducted a study to highlight the importance of technology. After careful
study, Woodward determined that three different types of technology were
reasonably predictive of the structural practices of the firms in the study.
t In unit and small-batch production, products are custom-produced to
meet customer specifications. Example: diamond cutting.
t In large-batch and mass production, products are manufactured in large
quantities, frequently on an assembly line. Example: Microchips used in
computers.
t In continuous-process production, products are liquids, solids or gases
that are made through continuous process. Example: Petroleum products
and chemical products.
The research team noted that unit and small-batch production has the least
complex technology while the continuous-process production has the most
complex technology. The technological complexity explains the differences
in the structural practices used by the organization. Table 8.1 below tabulates
Woodward's findings.
Table 8.1: Woodward's Findings on Structural Characteristics and Technology

Technology
Structural Characteristics Small batch Mass production Continuous Process
Levels of Management 3 4 6
Executive span of control 4 7 10
Supervisory span of control 23 48 15
Industrial Workers vs Staff (ratio) 8:1 5.5:1 2:1
Formalization Low High Low
Centralization Low High Low

Note: Data are medians for the organizations within each technological category.
Source: Joan Woodward, "Industrial Organization: Theory and Practice", Oxford University Press, London
(1965) page 52-62.

192
 The most important outcome of Woodward's research was the finding that Technology Adoption and
Productivity
the more successful firms had structural characteristics that were close to
the median for their particular technology. In contrast, the less successful
firms had structural characteristics that deviated more significantly from the
median for their main technology. The implication of these results is that
appropriate structural characteristics depend (at least to some extent) on the
type of technology involved.
(b) Technological Interdependence: Technological interdependence is the
degree to which different parts of the organization must exchange information
and materials in order to perform their required activities.
There are three major types of technological interdependence:
i. Pooled interdependence: Under pooled interdependence, the unit
operates independently but their individual efforts are important to the
success of the organization as a whole. This type of technological
organization involves the least interdependence. For example: Branch
banking system.
ii. Sequential interdependence: In this type, one unit must complete its
work before the next unit in the sequence can begin to work. For example:
Process manufacturing where the output of Process A becomes input
of Process B.
iii. Reciprocal interdependence: In this type, one unit's output becomes
input to the other unit and vice versa. For example, in the airlines industry,
the flight crew hands over the aircraft to the maintenance crew after
the flight. The maintenance crew, after refuelling and routine servicing/
repairs, releases the plane to the next flight crew.
2. Size: Four recognizable trends have been identified by studies of size effects on
structure:
(a) As organizations grow, they are likely to add more departments and levels,
making their structures increasingly complex.
(b) Growing organizations tend to take on an increasing number of staff positions
in order to help top management cope with the expanding size.
(c) Growing companies have additional rules and regulations to accompany
organizational growth.
(d) As organizations grow, they tend to become more decentralized.
3. Environment: Firms have different characteristics, depending on whether they
operate in a stable environment or an unstable environment.
(a) If a firm operates in a stable environment, they tend to have relatively
mechanistic characteristics, such as high centralization of decision making,
many rules and regulations and mainly hierarchical communication channels.
(b) In contrast, firms that operate in highly unstable and uncertain environment
have relatively organic characteristics such as decentralization of decision
making, few rules and regulations and both hierarchical and lateral
communication channels.
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Technology Management The characteristics of mechanistic and organic organizations are summarized in table
8.2 below.
Table 8.2: Characteristics of Mechanistic and Organic Organizations

MECHANISTIC ORGANIC
Work is divided into narrow, specialized tasks. Work is defined in terms of general tasks.
Tasks are performed as specified unless changed Tasks are continually adjusted as needed through
by managers in the hierarchy. interaction with others involved in the task.
Structure of control, authority, and Structure of control, authority, and
communication is hierarchical. communication is a network.
Decisions are made by the specified hierarchical Decisions are made by individuals with relevant
level. knowledge and technical expertise.
Communication is mainly vertical, between Communication is vertical and horizontal, among
superior and subordinate. superiors, subordinates, and peers.
Communication content is largely instructions Communication content is largely information
and decisions issued by superiors. and advice.
Emphasis is on loyalty to the organization and Emphasis is on commitment to organizational
obedience to superiors. goals and possession of needed expertise.

Source: T. Burns and G.M Stalker, "The Management of Innovation", Tavistock, London (1961) Pages 119 - 122.

8.3.5 Key Organizational Design Processes

Differentiation is the design process of breaking the organizational goals into tasks.
Integration is the design process of linking the tasks together to form a structure that
supports goal accomplishment. These two processes are the key design processes.
Organizational structure, therefore, helps a person understand the larger working
environment and may prevent confusion in the organization. Prof. Paul R Lawrence and
Prof. Jay W Lorsch reasoned that organizational environments might have different
effects on various units within the same organization and the firms attempt to balance
differentiation with efforts toward integration.
(a) Differentiation: Differentiation is the process of deciding how to divide the work
in an organization. Differentiation ensures that all essential organizational tasks are
assigned to one or more jobs and that the tasks receive the attention they need.
Lawrence and Lorsch in their book, focused on differentiation, the extent to which
organizational units differ from one another in terms of the behaviours and
orientations of their members, and their formal structures. They found four
dimensions of differentiation.
v Time orientation.
v Manager's goal orientation.
v Interpersonal orientation, and
v Formality of structure.
(b) Integration: Differentiation is only half the story. When Lawrence and Lorsch
considered the firm's effectiveness, they found that the most effective firms
attempted to balance differentiation with efforts toward integration. Integration is
the process of coordinating the different parts of an organization. Integration helps
keep the organization in a state of dynamic equilibrium, a condition in which all the
parts of the organization are interrelated and balanced.

194
Vertical linkages are used to integrate activities up and down the organizational chain of Technology Adoption and
Productivity
command. These include:
l Hierarchical referral when there is a problem that employees do not know how
to solve, it can be referred up the organization for consideration and resolution.
l Rules and procedures as well as plans and schedules, provide standing information
for employees without direct communication.
l Positions added to structure of the organization such as "assistant to" often reflects
growth and increasing complexity. This action tends to reduce the span of control,
thus allowing more communication and closer supervision.
l Management Information Systems (MIS) designed to process information up
and down the organization, also serve as vertical linkage mechanism.
The strongest method of horizontal integration is through teams. Horizontal teams cut
across existing lines of organizational structure to create new entities that make
organizational decisions.
The use of this linkage mechanism varies from organization to organization as well as
within areas of the same organization.
8.3.6 Five Structural Configurations
Building on the research about how contingency factors affect structure, Henry Mintzberg
has developed five common structural configurations. He also has outlined the contingency
conditions under which the various configurations are likely to be most effective.
Henry Mintzberg's Five Structural Configurations and their characteristics are detailed
in table 8.3 below.
1. Simple Structure: The simple structure is an organization with little technical and
support staff, strong centralization of decision making by top management and a
minimal middle level. This structure has minimum of vertical differentiation of
authority and minimum formalization. It achieves coordination through direct
supervision, often by the chief executive.
The simple structure is most widely practiced in small businesses in which the
manager and the owner are one and the same. The strength of the simple structure
lies in its simplicity. It's fast, flexible, inexpensive to maintain, and accountability is
clear. One major weakness is that it's difficult to maintain in anything other than
small organizations. It becomes increasingly inadequate as an organization grows
because its low formalization and high centralization tends to create information
overload at the top.
2. Machine Bureaucracy: The machine bureaucracy is an organization with a well-
defined technical and support staff differentiated from the line operations of the
organization, limited horizontal decentralization of decision making, and a well-defined
hierarchy of authority. The technical staff is powerful in a machine bureaucracy.
There is strong formalization through policies, procedures, rules and regulations.
Machine bureaucracies tend to fit best in situations in which the organization is
large, the technology involves large-batch and mass production and the organization
operates in a simple and stable environment. As a result, a machine bureaucracy is
195
Technology Management likely to be found in large, mature, mass-production companies, such as automobile
manufacturers, and in large mass-service organizations such as insurance
companies.
Table 8.3: Characteristics of Mintzberg's Five Structural Configurations

STRUCTURAL CONFIGURATIONS
Characteristics Simple Machine Professional Divisional Adhocracy
Structure Bureaucracy Bureaucracy Form
BASIC PARAMETERS
Power Top CEO and Professionals Division Scientists,
concentration Executives designers of Executives technocrats,
work flow and middle
managers
Key coordinating Direct Standardization Standardization Mutual
Standardization adjustment
mechanism supervision of work of skills of outputs
CONTINGENCY FACTORS
Age and size Young, Old, large Varies Old, very large Young, small
small to moderate
Technology Simple, Mass Complex; uses Divisible; Sophisticated,
custom production, standardized varies automated, or
large batch training. custom
Simple and Simple and Complex and Simple and Complex and
Environmental dynamic
complexity and dynamic stable stable stable at
dynamism divisions
STRUCTURAL ELEMENTS
Departmentalization Functional Functional Functional or Divisional or Matrix; uses
Hybrid hybrid integrators

Formalization Low High Low High within Low

divisions
Use of horizontal Low Low High among Low between High
coordination professionals divisions,
methods moderate
within
divisions

Source: Henry Mintzberg "Structure in Fives: Designing Effective Organizations", Prentice-Hall, Englewood
Cliffs, N.J (1983) page 280 - 281.

3. Professional Bureaucracy: The professional bureaucracy emphasizes the expertise

of the professionals in the operating core of the organization. The technical and
support staff serve the professionals. There is both vertical and horizontal
differentiation in the professional bureaucracy. Coordination is achieved through
the standardization of the professionals' skills.
Classic examples of professional bureaucracies are hospitals, universities, and
accounting firms, all of which hire large numbers of trained professionals. For the
most part, these professionals engage in complex, but fairly standard, activities and
are able to operate effectively with a minimum of coordination with others because
of their extensive training. Because the success of its operations depends on these
trained professionals, the professional bureaucracy decentralizes a considerable
amount of decision-making power to them.
4. Divisionalized Form: The divisionalized form is a loosely coupled, composite
structural configuration. It is a configuration composed of divisions, each of which

196
 may have its own structural configuration. Each division is designed to respond to Technology Adoption and
Productivity
the market in which it operates. This form of organization may have one division
that is a machine bureaucracy, one that is an adhocracy, and one that is a simple
structure. The heads of the divisions wield considerable power in the divisionalized
form. Since the divisions are created to operate somewhat separately, there is little
use of horizontal coordination between divisions, although such mechanisms may
be used within divisions. Top management maintains control by visiting the divisions
periodically, requiring that they receive top-level approval for some of their most
important decisions, and measuring standardized outputs.
5. Adhocracy: The adhocracy is a highly organic, rather than mechanistic, configuration
with minimal formalization and order. It is designed to fuse interdisciplinary experts
into smoothly functioning ad hoc project teams. Liaison devices are the primary
mechanism for integrating the project teams in an adhocracy through a process of
mutual adjustment. There is a high degree of horizontal specialization based on
formal training and expertise.
The adhocracy has numerous managers, such as functional managers and integrating
managers, who help with the extensive horizontal coordination necessary to tap required
expertise for particular projects and product areas: Organizations operating in the
aerospace, petrochemical and film-making industries are often adhocracies.
Why do structures differ? The basic design dimensions and the resulting structural
configurations play out in the context of the organization's internal and external
environments. Four contextual variables influence the success of an organization's design:
Size, technology, environment and strategy and goals. These variables provide a manager
with challenges in considering an organizational design, although they are not necessarily
determinants of structure.
8.3.7 The Major Forces
The major forces that have been identified as causes or determinants of an organization's
structure, are:
1. Organization Size: A quick glance at the organizations we deal with regularly in
our lives would lead most of us to conclude that size would have some bearing on
an organization's structure. The total number of employees is the appropriate
definition of size when discussing the design of organizational structure. This is
logical, because people and their interactions are the building blocks of structure.
Other measures, such as net assets, production rates and total sales, are usually
highly correlated with the total number of employees but may not reflect the
actual number of interpersonal relationships that are necessary to effectively
structure an organization.
Considerable evidence supports the idea that an organization's size significantly
affects its structure. For example, large organizations employing more than 1000
people tend to have more specialization, more departmentalization, more vertical
levels, and more rules and regulations than do small organizations.
When exploring structural alternatives, what should the manager know about
designing structures for large and small organizations? Table 19.4 below illustrates
the relationships among each of the design dimensions and organizational size.

197
Technology Management Table 8.4: Relationship between Organizational
Size and Basic Design Dimensions

Basic Design Dimensions Small Organizations Large Organizations

Formalization Less More
Centralization High Low
Specialization Low High
Standardization Low High
Complexity Low High
Hierarchy of Authority Flat Tall

Note 1: Formalization, specialization, and standardization all tend to be greater in large organizations
because they are necessary to control activities within the organization.

Note 2: By decentralizing decision making, the larger organization adds horizontal and vertical complexity.

Note 3: As size increases, complexity increases; thus, more levels are added to the hierarchy of authority.
This keeps the span of control from getting too large.

Source: Debra L Nelson and James Campbell Quick "Organizational Behaviour - foundations, realities and
challenges" (second edition), West Publishing Company, Minneapolis (1997) Page 455.

Balancing the design dimensions relative to size is a perplexing problem.

2. Technology: An organization's technology is an important contextual variable in
determining the organization's structure. Technology is defined as the tools,
techniques, and actions used by an organization to transform inputs into outputs.
Determining the relationship between technology and structure is complicated,
because different departments may employ different technologies. As organizations
become larger, there is greater variation in technologies across units in the
organization. Joan Woodward, Charles Perrow and James Thompson have developed
ways to understand traditional organizational technologies. We have already
discussed Joan Woodward's contribution. Therefore, we now discuss Perrow's
and Thompson's contribution.
Perrow's Contribution: Perrow proposed a scheme based on two variables: Task
Variability and Problem Analyzability.
v Task Variability considers the number of exceptions encountered in doing
the task within a job.
v Problem Analyzability examines the type of search procedures followed to
find ways to respond to task exceptions.
Perrow went on further to identify the key aspect of structure that could be modified
to the technology. These four structural elements are:
v The amount of discretion that an individual can exercise to complete a task.
v The power of groups to control the unit's goals and strategies.
v The level of interdependence among groups, and
v The extent to which organizational units coordinate work using either feedback
or planning.

198
 Figure 8.2 below summarizes Perrow's findings. Technology Adoption and
Productivity
Task Variability

Few Exceptions Many Exceptions

Craft Non-routine
1. Moderate 1. Low
Ill-defined and 2. Moderate 2. Low
Unanalyzable 3. Moderate 3. Low
Problem Analyzability

4. Low moderate 4. Low

5. High 5. High
6. Low 6. Low

Routine Engineering
1. High 1. Moderate
Well-defined 2. High 2. Moderate
and Analyzable 3. Moderate 3. High
4. High 4. Moderate
5. Low 5. Moderate
6. High 6. Moderate

Key:
1. Formalization 4. Standardization
2. Centralization 5. Complexity
3. Specialization 6. Hierarchy of authority

Source: C. Perrow, "A Framework for the comparative analysis of organizations", American Sociological
Review, (April 1967) Page 194 - 208.

Figure 8.2: Perrow's Findings about the Relationship between Technology

and Basic Design Dimensions
Thompson's Contribution: Thompson's view is based on the concept of
technological interdependence and the pattern of an organization's work flows. He
suggests that greater technological interdependence leads to greater organizational
complexity and that the problems of this greater complexity may be offset by
decentralized decision making.
3. Environment: The third contextual variability for organizational design is
environment. An organization's environment is composed of those institutions or
forces that are outside the organization and potentially affects the organization's
performance. These typically include suppliers, customers, competitors, government
regulatory agencies, public pressure groups, and the like.
Why should an organization's structure be affected by its environment? The
perception of environmental uncertainty or the perception of the lack of
environmental uncertainty is how the contextual variables of environment most
influence organizational design.
v Some organizations face relatively static environments few forces in their
environment are changing.
v Other organizations face very dynamic environments rapidly changing forces
in their environment.
199
Technology Management Static environments create significantly less uncertainty for managers than
do dynamic ones. And since uncertainty is a threat to an organization's
effectiveness, management will try to minimize it. One way to reduce
environmental uncertainty is through adjustments in the organizational structure.
4. Strategy and Goals: The fourth contextual variable that influences how the design
dimensions of structure should be enacted is the strategies and goals of the
organization. Strategies and goals provide legitimacy to the organization, as well as
employee direction, decision guidelines and criteria for performance. In addition,
strategies and goals help the organization fit into its environment.
An organization's structure is a means to help management achieve its objectives.
If management makes a significant change in its organization's strategy, the structure
will need to be modified to accommodate and support this change. Most current
strategy frameworks focus on three strategic options and structural design that
works best with each. These strategic options are:
i. Innovative Strategy: An innovative strategy does not mean a strategy merely
for simple or cosmetic changes from previous offerings but rather one for
meaningful and unique innovations. Obviously, not all firms pursue innovation.
ii. Cost-minimization Strategy: An organization pursuing a cost-minimization
strategy tightly controls costs, refrains from incurring unnecessary innovation
or marketing expenses, and cuts prices in selling a basic product.
iii. Imitation Strategy: Under this strategy, organizations take the successful
ideas of innovators and copy them. Organizations following an imitation strategy
try to capitalize on the best of both: the previous as well as the copied strategies.
They seek to minimize risk and maximize opportunity for profit. The strategy
of such organizations is to move into new products or new markets only after
viability has been proven by innovators.
Examples of how different design dimensions can affect the strategic decision
process are given in the table 8.5 below:
Table 8.5: Examples of How Structure Affects the Strategic Decision Process

FORMALIZATION
As the level of formalization increases, so does the probability of the following:
1. The strategic decision process will become reactive to crisis rather than proactive through
opportunities.
2. Strategic moves will be incremental and precise.
3. Differentiation in the organization will not be balanced with integrative mechanisms.
4. Only environmental crises that are in areas monitored by the formal organizational systems
will be acted upon.
CENTRALIZATION
As the level of centralization increases, so does the probability of the following:
1. The strategic decision process will be initiated by only a few dominant individuals.
2. The decision process will be goal-oriented and rational.
COMPLEXITY
As the level of complexity increases, so does the probability of the following:
1. The strategic decision process will become more politicized.
2. The organization will find it more difficult to recognize environmental opportunities and
threats.
3. The constraints on good decision processes will be multiplied by the limitations of each
individual within the organization.

Source: J. Predrickson, "The strategic Decision Process and Organizational Structure," Academy of
200
Management Review (1986) Page 284.
 Technology Adoption and
8.4 ORGANISATIONAL REDESIGN Productivity

Several forces reshaping organizations are causing managers to go beyond the traditional
frameworks and to examine ways to make organizations more responsive to customers
needs. Some of these forces are explained below:
1. Shorter Life Cycles within Organization: Organizations are dynamic entities. They
have a life cycle that begins at birth, moves through growth and maturity to decline.
Organizational sub-units may have very similar life cycles. Hence, the sub-units that
compose the organization will change more rapidly than in the past. These shorter life
cycles enable the organization to respond quickly to external demands and changes.
Shorter life cycles put more pressure on the organization to be both flexible and
efficient at the same time. At each stage, the organization differs in its strategies and
goals as well as in its structural emphasis. The effective manager is able to use the
redesign process to keep abreast of the needs for structural change.
2. Globalization: The choice of structure for managing an international business is
generally based on choices concerning the following three factors:
(a) A hierarchy of authority must be created that clarifies the responsibilities of
both domestic and foreign managers.
(b) Foreign and domestic operations should be grouped in such a way that the
company effectively serves the needs of all customers.
(c) The global structure must allow decisions to be made in the most appropriate
area of the organization. However controls must be in place that reflect the
strategies and goals of the parent firm.
3. Changes in Information Processing Technologies: Changes in information-
processing technologies have allowed organizations to move into new product and
market areas more quickly. More integration and coordination is evident, because
managers can be world-wide connected through computerized networks. The impact
of advanced information-processing technologies on the basic design dimensions
have been affected as follows:
(a) The hierarchy of authority has been flattened.
(b) Managers can use technology to push information and decision making lower
in the hierarchy and thus decrease centralization.
(c) Less specialization and standardization are needed.
8.4.1 Matching Strategy and Structure
Danny Miller, using four of Mintzberg's configurations (simple structure, machine
bureaucracy, divisionalized form, and adhocracy) attempted to match strategies with
appropriate structures. The main strategies that Miller considered are:-
1. Niche Differentiation: The aim of this strategy is to distinguish one's products
and services from those of competitors for a narrow target market.
2. Cost Leadership: This strategy emphasizes organizational efficiency so that products
and services can be offered at prices lower than those of competitors.
3. Innovative Differentiation: The aim of this strategy is to distinguish one's products
and services from those of competitors by means of innovation. 201
Technology Management 4. Market Differentiation: This is a strategy aimed at distinguishing one's products
and services from those of competitors through advertising, prestige pricing and
market segmentation.
Miller's matches of structure and strategy are shown in table 8.6 below
Table 8.6: Major Matches of Structure and Strategy
Mintzbergs Type of
Configurations Departmentalization Strategy
Simple Structure Functional Niche differentiation or focus.
Machine bureaucracy Functional Cost leadership; possibly
Divisionalized form Divisional or Hybrid Market differentiation or cost leadership at
division level.
Adhocracy Matrix, integrators Innovative differentiation

Source: Danny Miller, "Relating Porter's Business Strategies to Environment and Structure: Analysis and
Performance Implications," Academy of Management Journal, Vol. 31, page 280 - 308.

l Simple Structure: The simple structure is best matched to a niche differentiation,

or focus, strategy. Firms with simple structures are usually more successful pursuing
a focus strategy in the form of simple innovations.
l Machine Bureaucracy: The machine bureaucracy structure is potentially highly
compatible with a cost leadership strategy. Because of its large size and high
formalization, a machine bureaucracy is particularly well suited to producing large
amounts of standardized goods and to closely controlling costs.
l Divisionalized Form: The divisionalized form of structure is generally well matched
with market differentiation or cost leadership strategies at the division levels. The
divisionalized form tends to encourage machine bureaucracy at the division level,
largely because of the imposition of controls from above.
l Adhocracy Structure: The adhocracy structure generally is compatible with a
structure of innovative differentiation.
8.4.2 Managerial Implications
Matching People and Structures Together: Organizations are complex social entities
composed of numerous interrelated components. People can work better in organizations
if they understand how their jobs and departments relate to other jobs in the organization.
Different structural configurations place unique demands on the people who work within
them. The diversity of people in work organizations suggests that some people are better
suited for a simple structure, others are better suited to a professional bureaucracy, and
still others are most productive in an adhocracy. Organizational structures are not
independent of the people who work within them. Managers must pay attention to the
technology of the organization's work, the amount of change occurring in the organization's
environment, and the regulatory pressures created by governmental agencies as they go
about the task of designing effective organizations.

8.5 ORGANISATIONAL REENGINEERING

Youve probably heard a lot about business process reengineering recently, through
business journals and trade publications, newly published books, or in training workshops.
It seems BPR is the latest and hottest management trend to hit the business and
governmental communities.
202
But is it more than just a passing fad? Is reengineering just the latest buzzword that Technology Adoption and
Productivity
brings with it a new assortment of consultants ready to slay the bureaucracy in the
name of efficiency. Or, is reengineering a culmination of many years of management
evolution, bringing a new emphasis on creativity, going where no one has gone before.
There are many misconceptions as to the essence of reengineering. Many times
organisations go through a major reorganisation and call it reengineering. Others reduce
their staffs by half and call it reengineering. Still others will simply take an efficiency
program they have in place and rename it reengineering.
Reengineering is not reorganising. Reengineering looks at what work is required to be
done, not how the organisation is structured. Organisation structures are defined only
after the processes necessary to produce products and services for the organisations
customers are designed. The organisation structure is then designed so it best supports
that process.
Reengineering is not downsizing. Downsizing focuses on the reduction of people to
achieve short-term cost reductions. Reengineering, on the other hand, focuses on rethinking
work from the ground up, eliminating work that is not necessary and finding better, more
effective ways of doing work that is essential.
Reengineering is not simply about making an organisation more efficient. You can have
the most efficient organisation in the world, but unless is effectively serves its customers,
in essence, accomplishes its mission, it is still of no value. Reengineering is about creating
value for the customer.
8.5.1 Meaning of Reengineering
Do not merely Automate. Obliterate - Michael Hammer
Chhodo Kal Ki Baatein - sounds like the popular song on India. But it is the true
essence and underlying principle of reengineering. The organisation breaks free from
the old, traditional, obsolete business processes and rethinks the new alternative Its
like rethinking a new enterprise, a new business process.
Reengineering is a holistic, dramatic change that occurs when a company radically
redesigns work for quantum improvements in performance. Michael Hammer and James
Champy say that in the broadest sense reengineering is starting allover again. Their
formal definition is:
the fundamental rethinking and radical redesign of business systems to achieve dramatic
improvements in critical, contemporary measures of performance, such as cost, quality,
service, and speed.
The key question for organisations is how to significantly improve cost, quality, service
and speed simultaneously. Understanding technically how to reengineer, does not ensure
success. What does increase chances of success is effectively using principles of change
management. Managing resistance to change in an organisation is by far the hardest
part of reengineering - and the part least receptive to a mechanical approach.
Early successes have fueled the growth of the reengineering movement all over the
world. Notable successes have been achieved by:
l Ford Motor Company: Reengineering improved its invoice processing so that the
process was accomplished by 75% fewer people and more accurate financial
information was produced. 203
Technology Management l IBM Credit Corporation: A credit issuance process that used to take two weeks
to complete now takes only four hours, with a 100-fold increase in productivity.
l Taco Bell: They reconfigured their restaurants to increase peak capacity for a top
unit from $400 per hour to over $1500 per hour. At the same time they lowered
prices; their average pricing today is about 25% less than nine years ago.
l Mahindra & Mahindra
l Bell Atlantic
l Westing House Electric
According to Hammer and Champy, reengineered processes are designed to be simpler
than those they replace. Several jobs might be combined into one and the number of
checks and controls reduced.
Frequently the result is that work is performed where it makes most sense, and workers
can make more decisions themselves. Often at times, a new hybrid of centralised and
decentralised operations is created. New information technology (such as, knowledge-
based, expert systems or sophisticated telecommunications equipment) is frequently
employed in the design of these processes.
Reengineering focuses on large, cross-functional processes and entire business systems.
As a result, reengineering can neither be initiated nor sustained from the bottom or
middle of the organisation. It is driven from the very top by a leader who believes that
nothing is more important than reengineering and who is willing to do whatever it takes
to make it happen.
8.5.2 Why Reengineer?
Why are others Reengineering?
Two main drivers for instituting new ideas and far-reaching organisational change are:
l Changes in competition, and
l Demands of customers.
Faced with changes in competition, Sterling Chemicals chose reengineering. Incremental
results were no longer enough; reengineering was the answer, said Paul Saunders,
Director, Manufacturing Operations.
Rick Crump, Vice President and Hart Schleicher, Senior Vice President, All Waste
Environmental Services, explains the importance of the customer: Our customers drive
our business. If they say improve in an area, we respond.
For many years, a company was considered secure if it was competitive in one of three
areas:
l Cost/Productivity
l Quality/Service
l Speed/Flexibility
Recently the necessity to be good at two of these has been recognised (i.e., to stay in
business you must provide high quality at low cost). We, however, are quickly arriving at
204 the point where it will be essential to excel in all three of these areas simultaneously.
Companies must learn to provide high quality products / services quickly, with flexibility Technology Adoption and
Productivity
and for a relatively low cost.
To accomplish this, companies are developing new processes to produce the results
important to the customer. They are looking for ways to become more flexible and
responsive.
Table 8.7: Jobs, Connections and Governance

Jobs Connections Governance

Old Simple Indirect Complex Company Structure
New Complex Direct Understanding and Agreement on Vision and Processes

Now, ever increasing demands for speed, flexibility and responsiveness are driving
companies to develop simple processes. Such processes can be created only by directly
connecting people who can - and must - perform complex, multi-disciplinary tasks.
8.5.3 When or Why should One Reengineer?
Each organisation must determine for itself if/when it is appropriate for them to reengineer.
Reengineering should be done only if it can help in achieving an enhanced strategic
position.
It is, therefore, critical that an organisations strategy be clear before beginning
reengineering. Some strategic indicators of the need to reengineer might include:
l Realisation that competitors will have advantage in cost, speed, flexibility, quality or
service
l New vision or strategy: a need to build operational capabilities
l Need to reevaluate strategic options, enter new markets or redefine products/
services
l Core operating processes are based on outdated assumptions/technologies
l Strategic business objectives seem unreachable
l Change in the marketplace:
l Loss of market share
l New basis of competition/new competitors
l New regulations
l Shorter product life cycles
l New technologies in play
On the other hand, reengineering might not be appropriate for an organisation. An
organisations position in its industry can make a difference. Industries as a whole
periodically reinvent themselves. So, if the company is at the cutting edge of an industry
that has just undergone major changes, reengineering might not be appropriate. However,
if the organisation operates with old models instead of the new technology and approaches
used by others, reengineering may be urgently needed.
Reengineering is a strong medicine, but it may not always be the right prescription. If
technical performance is adequate, other improvements may be needed such as training, 205
Technology Management organisational change, leadership development, etc. The biggest problems facing many
organisations are strategic & not operational, in nature. It is therefore, especially important
that an organisations strategy be clear before reengineering. Otherwise, extraordinary
amounts of time and effort may be spent improving processes unimportant to a companys
strategic needs.
Table 8.8: Principles of Reengineering
Principle Description Objectives Example (s) Old
Organize around 1. have one person 1. Eliminate hand-offs, 1. Mutual Benefit life: 1. Oraganize around
outcomes, not perform all steps in a errors, misunders- case managers specialized labor
tasks. process. tandings, dely, and perform entire
rework application approval
process (reduced
cycle time by 80%)
2. Design a job 2. compress linear 2. Electronics 2. Sequential,
around an objective / processes. company: Filling assembly-line
outcome instead of a customer orders by approach
single task having one person
who oversees
whole process
3. compressed 3. Work cells in JIT 3. Organization
responsibility for the environment based on paper /
various steps are manual files or
reassigned to one information
person
4. One position / person 4. Small cross- 4. Each department
expedites and functional teams has a specific
coordinates the with broad roles, skill set, and only
process and skills, and decision- one department at
provides one point of making a time can do its
contact for customer responsibilities work.
5. Individual in a new 5. Self directed work
position may need to teams
be
Supported by: expert /
automated systems
Specialists as advisors

8.5.4 How is Reengineering Done?

Phase I
Position for Change: Position your organisation - deciding why you must change and
what you must become, developing focus and mobilising resources - for implementation.
Implementation starts now!
Phase II
Diagnose the Existing Process: Understand what the existing process does and why
its designed as it is. This understanding, when put into the context of customer goals and
the required levels of performance, provides the foundation for fundamental rethinking
about the process.
Phase III
Redesign the Process: Envision a new way of organising and performing work to meet
customer goals and needs. Soliciting inputs from key people and organisations in creating
the vision improves the chances for successful transition to the vision.
Phase IV
Transition to the New Design: Develop a strategy and business plan for transitioning to
the process vision. Test the new process to demonstrate the concept and build enthusiasm.
206 Manage the natural resistance to change at all levels.
8.5.5 Major Components of Business Process Reengineering (BPR) Technology Adoption and
Productivity
Table 8.9: Six Critical Success Factors for Reengineering

Factor Characteristics
Understand Understand business process fundamentals. Know what reengineering is.
reengineering Build a Differentiate and integrate process improvement approaches which have
business case necessary and sufficient business (mission and political delivery) reasons
for reengineering. Have the organizational commitment and capacity to
initiate and sustain reengineering. Secure and sustain political support for
reengineering.
Adopt a process Understand the organizational mandate and set mission strategic directions
management approach and goals cascading to process-specific goals and decision-making across
and down the organization. Define, model, and prioritize business
processes important for mission performance. Practice "hands on" senior
management ownership of process improvement through personal
responsibility, involvement, and decision-making. Adjust organizational
structures to better support process management initiatives. Create an
assessment program to evaluate process management
Measure and track Create organizational understanding of the value of measurement and how
performance it will be used. Tie performance management to customer and stakeholder,
continuously current and future expectations.
Practice change Develop human resources management strategies to support reengineering.
management and Build information resources management strategies and a technology
provide central framework to support process change. Create a central support group to
support assist and integrate reengineering efforts and other improvement efforts
across the organization. Create an overarching and project-specific internal
and external communication and education program.
Manage reengineering Have clear criteria to select what should be reengineered. Place the project
projects for results at the right level with a defined reengineering team purpose and goals. Use
a well-trained, diversified, expert team and facilitate its working. Follow a
structured, disciplined approach to reengineering.

Strategic/Business Planning
Strategic planning provides a set of business goals and defined requirements which are
expressed in terms of customer needs all within the context of mission, vision, values and
beliefs. A strategic plan defines what an organisation is all about, which it will serve,
what needs it will fulfill, and under what terms it will operate (values and beliefs).
Activity Modeling
Activity modeling is a technique that assists in understanding how a business process
really works. We use activity modeling to describe how things are (called AS-IS modeling),
and how we want them to be, based on our redesign criteria (called TO-BE modeling).
In activity modeling, we decompose a business process step-by-step into activities that
make up the process. This results in a multi-level diagram that corresponds to the way
we do work.
Data Modeling
Data modeling is a technique for accurately describing exactly what information you
need to perform each and every activity that makes up the business process you perform.
As with activity modeling, we produce an as-is model, describing the current data
environment, and then a to-be model showing what our data structures will need to be
to support our redesigned processes.

207
Technology Management Activity Based Costing
Activity-Based Costing (ABC) is a technique that allows us to determine the costs of
producing our primary products and services. ABC is an extension of activity modeling
and it requires a fair amount of work to produce the numbers.
Economic Analysis
Economic analysis gives us the capability to determine the costs and benefits associated
with alternative investment opportunities, taking into account the life cycle characteristics
of each investment. Economic analysis also presents the decision data in equally valued
rupees (taking the time value of money into consideration), as well as the risks associated
with making decisions about future conditions and performance.
8.5.6 What Results can be Expected?
The most direct benefit companies see from reengineering is significant (often 50% -
100%) process improvement. Costs are lowered while speed, quality, and service are
dramatically improved. Reengineering has a greater chance of success if it is viewed as
leading to growth and value-creation.
Table 8.10: Major Corporations that have undergone Reengineering
The Federal Government of Canada Nabisco Corporation

U.S. Federal Aviation Administration AT&T

U.S. Federal Reserve Bank Xerox

U.S. Small Business Administration M&M / Mars

NASA Langely Research Center UNUM Life Insurance

Motorola Sprint Communications

Texaco Kimberly-Clark Corporation

Deloitte & Touch Rockwell Space Operations

Coopers & Lybrand Hewlett Packard

Booz Allen & Hamilton Intel

Gemini Consulting Exxon Chemical, USA

Raychem Corporation Eli Lilly & Company

Browning Ferris Industries Bristol-Myers Squibb

Northrop Grumman Hoffman LaRoche

USM 3MUnitek

North American Training Alliant Health System

Marathon Oil St. Lukes Episcopal Hospital

Virginia Power The Methodist Hospital

El Paso Natural Gas M.D. Anderson Cancer Center

Rohm & Haas The University of Texas Health Science

Affiliated Systems MBNA Information Services

Weingarten Realty Los Alamos National Laboratories

208 Northwestern National Life Houston Cellular

Unfortunately, reengineering seldom (only 20% of the time) makes a significant impact Technology Adoption and
Productivity
on the organisations bottomline. To translate process improvement into higher profit and
revenue, and lower costs for the business unit, requires breadth, depth, and leadership in
reengineering.
There are costs to reengineering that must be considered before deciding that this is the
right strategy for an organisation. There will certainly be disruption of the status quo -if
there isnt, there wont be any change. Companies thus must weigh the costs against the
potential gains.
Wayne Code, President and CEO, Vallen, explains, These changes may be traumatic,
but the pain is outweighed by the gains made in the move toward the significant goals
set. Change occurs when the pain of change is less than the pain of staying the same.

8.5.7 Cases where Reengineering has Worked

IBM Credit Corporation
IBM Credit is a wholly owned subsidiary of IBM and, if it were independent, would rank
as one of the largest service companies in U.S. Before taking a reengineering effort,
IBM Credits operations had many bureaucratic rules and procedures. When IBM people
called in for a credit request, they would reach one of the fourteen people at the credit
center, who would log the request. From there, there were a series of specialists who
would each play a role in processing the credit request.
Typically it would take six days to fourteen days to get the final approval. Upon an in
depth analysis, it was found that there was only ninety minutes of work that was required
to process the request. The rest of the time was spent in moving the request through the
channels, where it would rest on the next persons desk.
This credit process was reengineered by replacing the current group of specialists by a
team of generalists, each of whom would see a credit request all the way through the
system. As a result the time needed to process the requests reduced from six days to
four hours, there was a slight reduction in the number of people working in the department,
and there was an increase in the number of deals being processed, by a multiple of 100.
Reengineering at KODAK
Kodak had used reengineering to reduce the time needed to bring the product to the
market. This began when the companys arch rival, the Japanese firm, FUJI announced
a new 35 mm, single use camera, which allows the customer to buy the unit loaded with
the film, use it once and then return it to the manufacturer, who processes the film and
breakdowns the camera into parts for re-use.
Kodak had no competitive offering and its traditional product design process would have
taken seventy weeks to produce a rival camera.
In the past Kodak had developed new products by using a combination of sequential
development (one step at a time) and parallel development (people working on a number
of steps in the process at the same time), but even this approach was slow. So Kodak
reengineered its product development process through the innovative use of computer-
aided-design and computer-aided-manufacturing.
Teams of developmental people worked independently on their respective parts of the
new camera, designing their inputs at the computer workstations. Then each day the
209
computer database would combine all the individual efforts into a whole. Each morning
Technology Management the design groups and individuals would inspect the database to see if any of the previous
days work created a problem for the overall design. If it did, the problem was resolved
immediately.
This redesigned work approach, called concurrent engineering, not only eliminated the
common problem associated with independent work teams having to coordinate their
efforts, but, with the innovative use of technology, permitted manufacturing engineers to
begin to design ten weeks into the developmental process.
As a result, it took Kodak only thirty-eight weeks to develop a single-use camera, almost
half the time it would have traditionally taken.
Ford - Mazda Case
In the mid-eighties, management of cash flow became a major problem for vendors
supplying components to Ford. The suppliers approached Ford and requested the company
to settle their invoices expeditiously.
When Ford looked at why it took several weeks to send the payment, they discovered
that some 500 people were employed in functions relating to accounts payable and a
major portion of their time was spent in reconciling various documents like purchase
order, goods received note, vendors bill etc.
By streamlining the process and reducing the work involved in such reconciliation, Ford
was able to halve the process time. They also achieved a 25% reduction in manpower.
Ford felt happy over the performance improvement until they discovered that Mazda of
Japan employed just five people to manage the same work.
In the case of Mazda there were no purchase orders or bills. Vendors had a direct
telelink to Mazdas computer. They picked up the delivery schedule right from Mazdas
system and supplied strictly in conformity to that. At the end of the day, the vendors
accounts were credited through electronic funds transfer based on the total production
in the JIT line at Mazda.
This gave Ford the idea to dispense with the need for a bill from the vendor to make the
payment. The process was changed from We pay on receipt of Vendor Invoice to we
pay on acceptance of goods.
Dispensing with the bills was a major breakthrough, which led to the process time, been
drastically reduced by four and a simultaneous (near 50%) reduction in staff strength.
What Ford achieved was not mere automation. They had obliterated the process involving
the vendor bills. Subsequently Ford obliterated a lot of other processes.
Case of Rovers
The Car Company Rover, aims to fulfill 90% of customers orders within two weeks
being. Using reengineering, it aligned itself around nine critical business processes -
from new product introduction to business planning. The results speak for themselves.
When almost all the European car makers see falling output and sales, Rovers is the only
car manufacturer to reverse the falling trends (Year 1993-94).
Case of Mutual Benefits Limited
Prior to reengineering its processes for approving insurance applications, paperwork had
to go through a 30-step, 5-department journey, involving credit checking, quoting, rating,
underwriting etc. The process of passing applications around, took anywhere from 24
210 hours to 25 days, but the work time was itself clocked at only 17 minutes.
The President of MBL demanded a 60% improvement in the productivity. The Technology Adoption and
Productivity
management team, in charge of the reengineering the process found that shared databases
and computer networks could make different kinds of information available to a single
person, and expert systems could help people with limited experience make a sound
decision. A new position, the Case Manager, was created.
Each has the total responsibility for an application from the time it is received to the time
the policy is issued. They are supported by PC based workstations running expert systems
and connect to a range of automated systems on a mainframe. Senior underwriters or
physicians are at hand to counsel and advise. MBL can now complete an application in
just four hours, and average turnaround takes two to five days.
(Harvard Business Review, July-August 1990).
Reengineering at Mahindra & Mahindra
If a huge manufacturing business of M&Ms proportion is to survive and prosper against
stiff competition, the most important thing is to upgrade its manufacturing process on the
scale of efficiency and effectiveness. M&M, at present, is doing just that.
M&M decided to draw up a world class manufacturing strategy to create a globally
competitive organisation. With UK-based CSC Ltd. as its consultant, M&M has taken
up Business Process Reengineering exercise under a code name the Mahindra Top
Gear Programme (MTGP).
Under this Programme M&M is radically revamping the production systems at its
factories in Mumbai, Nasik & Igatpuri. Different teams are working to streamline activities
in areas like manufacturing and the supply chain. The focus is on:
Managing Structures: The earlier functional layout of the production plant has been
changed to evolve a new Product Unit Structure. Each facility is being re-laid in a
fashion that would help in manufacturing a single, homogenous group of components
going straight to the final assembly line. Each product unit has its own Supply Module
and this makes the supply line very efficient.
Managing Systems: The old system, where machine shops were specialised in doing a
particular task, is replaced by the Cellular Manufacturing System. All the machining and
assembly operations required to produce apart or a sub-assembly are grouped under one
cell. Here the material flow is streamlined and the cycle time is reduced by almost 50%.
Also the inventory levels have started coming down. As the cell members work as a
team, motivation level is high.
Managing Flexibility: The flexible manufacturing system allows M&M to switch
between manufacturing different products, without losing any time while doing so. Also
a concept of multi-machine-manning is being implemented where an operator works on
more than one machine at a time. Workers are being trained for the same.
Managing Material Flow: The manufacturing process is designed to work on Pull-
System. Single piece flow will be observed throughout the production cycle. This would
reduce in-process inventory and stocks of raw material and finished goods.
Managing Cycle Times: With the cellular layout structure and with near autonomous
product units, M&M plans to reduce the production cycle time by almost 50%.
Managing Ownership: Participation of the workforce is perhaps the most important
feature of the Mahindra Top Gear Programme. The operators work in teams, set their 211
Technology Management own production targets and completely own that production cell. This has highly motivated
them and their active participation is making this Change-Programme a Grand Success.
M&M is also developing sourcing strategies for critical components like castings, seats
& trim etc. Make or Buy options have been determined for these parts and a dedicated
team of suppliers has been formed.
Mahindra & Mahindra Ltd., through MTGP, has planned to double the productivity along
with reduction in inventory levels, smoother production flows, reduced cycle time,
improved sourcing strategies and better relations with suppliers and above all; to create
a highly motivated workforce.
Reengineering at Bell Atlantic
When Bell Atlantic examined the cycle time involved in filling an order for telephone line
from a long distance carrier, it found that the order passed through 28 hands before being
filled. This was attributed to the companys function based structure, which carved work
in process into discrete tasks that were then allocated among departments - some being
geographically dispersed. Each department performed its work and passed it on to the
other department.
Bell Atlantic made sweeping changes in the order placement process. It assigned a team
to study the process by following a single order as it passed from one end to the other. It
established two working teams, each having a different charter. One team was responsible
for generating the ideas and redesigning the process, while the other team was responsible
for testing and refining the ideas put forth.
This led to a considerable reduction in the total time required to process one request and
also the number of personnel were reduced.
Reengineering at Westing House Electric
In the first case, Westing House looked at the customer ordering process in one of the
companys businesses. By restructuring and then automating the order entry procedures,
the time needed to process an electrical parts order was reduced from 28 hours to just
10 minutes - a whooping 99.4% decline in process time. The cost per order was also cut
by almost two-thirds.
In the second case, the cycle time required to reload the fuel assemblies in the nuclear
power plants was reduced from three years to one and a half years. This resulted in a
25% reduction in costs. The reduction in the cycle time also allowed the engineering
departments to increase its workload by 40%, with only a 10% increase in the head
count.

8.6 ORGANISATIONAL RESTRUCTURING

Business restructuring includes a broad set of decisions and transactions, such as changing
the organisation of the work itself, reducing the amount of cash under the discretion of
senior executives etc. Ideally the purpose of business restructuring is to enhance the
wealth of the shareholders by satisfying the need of the various stakeholders.
For instance, in U.S., General Mills has voluntarily restructured a number of times. The
benefits of this have included, lowering of the personnel through a freeze on hiring and
accelerated voluntary retirement rather than on abruptly firing people and demoralising
212
the entire organisation, changing suppliers and channels of distribution gradually with Technology Adoption and
Productivity
longer time notices, thereby gaining a positive corporate reputation.
Organisational restructuring refers to fundamentally changing the organisation of the
work itself at the corporate level or radically re-configuring activities and relationships at
the business unit level. According to Alfred Chandler, the brain behind the concept of
restructuring, as the strategy changes, the organisation of the corporate entity must also
change in order to get the work done effectively.
Organisational restructuring may be taken in parts or as a whole entity. The goal in either
case is to heighten efficiency and effectiveness. For instance, Paramount Publishing
Group at one time had two divisions - Prentice Hall and Allyn & Bacon which sold a
variety of textbooks to universities. Subsequently, it also acquired Mac Milan Publishing
with its own variety of books.
Rather than having each publisher sell a variety of books, the publishing work was re-
organised so that Prentice Hall could concentrate on business texts and Allyn & Bacon
on social science, health, education and the physical sciences. Mac Milan was dissolved
and its titles are transferred to Prentice Hall or Allyn & Bacon.
Organisational restructuring can be done pro-actively, as in the case of Paramount Group,
or in response to the changes in the environment. For example, U.S. colleges and
universities had to organisationally restructure because students have progressively
become more interested in specialised areas of education rather than in a traditional
liberal arts education.
8.6.1 Cases on Restructuring
Restructuring at IBM
In 1991, IBMs sales dropped by 6.1% to $64.8 billion, its first decline in revenue since
1946. And for the first in its history, it incurred a loss of $2.8 billion. Its problem? IBM
was operating as it always had but its environment had changed dramatically. The computer
industry was and is on continual accelerating change.
At the center of this dynamic environment stood huge, bureaucratic and centralised
IBM - a company still dominated by its mainframes computer division. As usual IBM
required that all decisions be taken at its headquarters at New York. It lagged behind in
the introduction of minicomputers, laptops and personal computers.
To turn the corporation around, the top management unveiled an extensive restructuring:
l The creation of semi-autonomous business units with profit & loss responsibility as
free to make its own manufacturing and pricing decisions.
l A drastic reduction in the work force. It pruned its work force by 1,60,00 and its
payroll by about 40%, with most of it through voluntary buy-out and early retirement
programs.
l Re-organisation of the R&D function. It took very long for IBM to get the products
outside the bag, testing them repeatedly and delaying the delivery. For this a leaner
department was created to speed up the procedure.
This restructuring enabled IBM to be out of the blue and maintain its reputation as the
BIG BLUE, in the stock markets.

213
Technology Management AT&T
In September, 1995, AT&T, an U.S. telecommunications company with $75 billion dollars
in 1994 sales and 303,000 employees, announced a major restructuring. The restructuring
involved splitting the company into three new, fully independent companies:
1. A network service company that will retain the AT&T brand name and will
encompass about $50 billion of AT&Ts 1994 sales.
2. A communications equipment company encompassing $20 billion of AT&Ts 1994
sales.
3. A computer company, built around the 1990 acquisition of the computer company
NCR Corp., with 1994 sales of about $5 billion.
AT&T announced that the restructuring would involve the elimination of about 48,000
jobs. AT&T offered those employees losing their job a special severance package that
included lump sum payments and retraining opportunities.
Explanations for AT&Ts restructuring centered on the changing telecommunications
environment. Rapidly advancing computer and communications technology as well as a
worldwide regulatory push to promote private-sector competition in telecommunications
are raising new business challenges.
Separating AT&T into three independent businesses gives these businesses more flexibility
and focus. The split also avoids the necessity of ongoing bureaucratic resolution of business
conflicts and customer concerns arising from the fact that major customers of the AT&T
telecommunications equipment business are also emerging as competitors to the AT&T
network operations business.
Restructuring at Mahindra & Mahindra
To meet the new challenges of competition & globalisation, a need was felt to do away
with rigid functional departments, which result in a delayed response to the marketplace
and lack of accountability for business processes. The need arose to clearly define, and
focus on selected thrust areas of business, and to consolidate and build on strength in
those areas.
To achieve this goal, the Mahindra Group was restructured and a new organisational
model was developed on December 5, 1994. Under this restructuring, the Mahindra
Group of Companies has been divided into six sectors namely,
1. Farm Equipment Sector
2. Automotive Sector
3. Infrastructure Development Sector
4. Trade & Financial Service Sector
5. Telecom, Software & Exports Sector
6. Automotive Components Sector
Each sector constitutes companies in related businesses and is headed by a designated
President who is responsible for the performance of the sector. The Mission of these
business sectors very simply is to rank amongst the top three players in their respective
214 industries within India; and to become recognised participants in the global arena.
A Corporate Center presides over these six business sectors and is responsible for Technology Adoption and
Productivity
formulating group strategy and policy, goal setting, raising and allocating financial resources,
performance measurement, consolidated accounting and group human resource
development.
This new structure has enhanced the integrity of the product delivery process, increased
opportunities to recognise individual talents through unambiguous accountability and
provided space for collective contributions to excellence.

8.7 TECHNOLOGY PRODUCTIVITY

Productivity is a measure of output to input. It is a measure of an employee's efficiency
in using the organisation's scare resources to produce goods and services. For example,
labor productivity is typically measured as a ratio of output per labor-hour, an input.
Productivity may be conceived of as a metric of the technical or engineering efficiency
of production. As such, the emphasis is on quantitative metrics of input, and sometimes
output. Productivity is distinct from metrics of allocative efficiency, which take into
account both the monetary value (price) of what is produced and the cost of inputs used,
and also distinct from metrics of profitability, which address the difference between the
revenues obtained from output and the expense associated with consumption of inputs.
Productivity is one of the most closely watched indicators of long-term economic
prospects. Rising productivity is the key to making possible permanent increases in the
standard of living.
If there has occurred permanent increases in the productivity of an organisation then it
has been due to the changes in technology. But a number of transient factors can affect
both true and "measured" productivity. For example, workers may work harder during
periods of high demand and firms may use their capital assets more intensively by running
factories for extra shifts; both factors can lead measured productivity to be too high
relative to actual technological progress. Similarly, during periods of high demand,
productivity can rise because firms take advantage of increasing returns to scale; the
authors argue that this effect is not permanent and should be discounted when measuring
long-run technical change. The strength of the latest economic expansion in the second
half of 1990s has led many commentators to argue that the rapid increases in measured
productivity during that period were attributable to bad measurement or to temporary
factors of this type.
The expansion that began in the 1990s also is distinguished by a large and long-lasting
increase in business investment. Although labor force employment, labor force
participation, and rates of unemployment have been comparable to what occurred in
earlier expansions, the share of investment in information technology rose from a baseline
of roughly 3 percent of GDP in the late 1980s to almost 6 percent of GDP by 1999. The
suggestion is that this unusually rapid rate of investment actually may lead measured
productivity growth to understate the underlying rate of technical change -- because
rapid capital investment disrupts firms' ability to produce output, for example because
their workers often are diverted from their normal tasks to install new equipment and
learn to use it effectively. These "adjustment costs" lower output growth, and thus lower
measured productivity growth as well.
Controlling for this range of confounding effects, the authors find that the strong
performance of productivity growth in the second half of the 1990s was in fact attributable
to accelerating technical change, not to poor measurement or to temporary factors.
They find that in the first half of the 1990s, true technology grew at an annual rate of 1.2 215
Technology Management percent, but this rate rose to 3.1 percent for the 1995-9 period. In fact, the rate of technical
change over 1995-9 exceeded even the measured growth rate of 2.5 percent, because of
the temporary damping effect of higher investment on productivity growth noted above.
In the aggregate, there is "evidence of a substantial increase in the pace of technological
change in the latter half of the 1990s." More intensive use of capital and labor accounted
for some of the increase in measured productivity in the first half of the 1990s, but that
utilization was flat or declining over the second half. Adjustment costs masked a substantial
fraction of the increases in true technology that occurred in the second half of the 1990s.
These results also suggest that productivity increases were distributed widely, if unevenly.
Durable manufacturing experienced the fastest rate of technology growth and its largest
acceleration, with increases of over 6 percent per year during the second half of the
1990s. Technological growth in the private non-manufacturing sector--which includes
the large and important service sector--increased from 0.9 percent to 2.7 percent over
the same period. In non-durable manufacturing, however, technology growth was "very
slow," although the authors suggest that this result may arise from data problems at the
end of the sample.
A manager can improve productivity either by increasing the amount of output, using the
same levels of inputs or reducing the number of inputs needed to produce the output, and
sometimes he can do even both. There are three specific areas where productivity
improvements can bring success to an organisation.
l Technological Productivity: This can come through the use of more efficient
machines, robots, computers and other technologies, which increase outputs
dramatically.
l Worker Productivity: This means having workers produce more output in the
same time period. Improved workplace design, proper use of rewards, empowerment
of employees, careful selection of talented people, etc., will help in keeping people
on the track and allow them to do things exceptionally well.
l Managerial Productivity: This means that the mangers do a better job of running
the organisation. Management productivity increases when managers focus on
quality breakdown barriers, empower employees, create teams and do not
overmanage using numbers.
8.7.1 Productivity Advantage through Advanced Technology
Management Systems vs. Technology
Since the time of Adam Smith's historic 18th century book The Causes of Wealth of
Nations, we have been taught to believe that labor specialization accompanied by
mechanization was the answer to economic growth and productivity. The Industrial
Revolution proved this to be so. Even today, the conventional wisdom of economists tells
us that the rate of productivity growth is largely a function of changes in real capital
relative to labor.
There is a continuing debate in Washington regarding the "reindustrialization of U.S.
industry" or "supply-side e{;onomics" as it is came to be known in the Reagan and Bush
administrations. The primary domestic objective of these administrations was the
improvement of the productivity of American industry by encouraging greater savings
and thus investment in capital stock. Competitiveness. it was said, required an overhaul
of U.S. technology. It is generally believed that Japan's quality and productivity advantage
216
comes from advanced technology.
It would be a mistake to attribute Japan's success to technology alone and a bigger Technology Adoption and
Productivity
mistake to consider technology to be the only answer to improved U.S. quality and
productivity. It is not labor replacement that is needed but rather improved processes.
Why, for example, would a company invest in advanced computer equipment to improve
an information system that is flawed or a manufacturing process that is antiquated? In
the first case, the technology will provide bad information more quickly so that poor
decisions can be made faster. In the second case, process labor may be replaced only to
find an increase in lead time, inventory turn, or cost of quality.
Many people think of technology as automation and mechanization, machines and
computers, and semiconductors and new inventions, but.the term has a much broader
meaning. It is a means of transforming inputs into outputs. Thus, technology includes
methods, procedures, and techniques which enable this transformation. It includes both
machines and methods. This is worth repeating: technology includes methods that improve
processes to improve the output/input ratio. Company after company has achieved
remarkable increases in both quality and producti vity with little or no investment in the
hardware side of technology.
No one can argue convincingly against the use of the hardware side of technology to
improve both quality and productivity. The problem is that automation and machines require
time and money, both of which are in short supply. Management systems take little of
either and may be equally or more effective. The solution is to improve the system-the
process-before introducing technology. General Motors has spent more on automation
than the gross national product of many countries, yet the excessive cycle time from
market research to manufacture resulted in the production of cars that were not competitive.
While GM was taking eight years to produce a Saturn, Honda took half as long to market
a more competitive car. Honda accomplished this by controlling cycle time and processes.
The general tendency is to focus on technology to reduce labor cost and to overlook the
improved quality that can be achieved through improvement of related processes and
tapping the potential of the work force. Good companies buy technology to improve
processes, reduce lead times, boost quality, and increase flexibility.
Main Processes of a Company
A company can be divided into sub-processes in different ways; yet, the following five
are identified as main processes, each with a logic, objectives, theory and key figures of
its own. It is important to examine each of them individually, yet, as a part of the whole,
in order to be able to measure and understand them. The main processes of a company
are as follows:
l real process
l income distribution process
l production process
Real Process
Productivity is created in the real process, productivity gains are distributed in the income
distribution process and these two processes constitute the production process. The
production process and its sub-processes, the real process and income distribution process
occur simultaneously, and only the production process is identifiable and measurable by
the traditional accounting practices. The real process and income distribution process
can be identified and measured by extra calculation, and this is why they need to be
217
analysed separately in order to understand the logic of production performance.
Technology Management Real process generates the production output from input, and it can be described by
means of the production function. It refers to a series of events in production in which
production inputs of different quality and quantity are combined into products of different
quality and quantity. Products can be physical goods, immaterial services and most often
combinations of both. The characteristics created into the product by the manufacturer
imply surplus value to the consumer, and on the basis of the price this value is shared by
the consumer and the producer in the marketplace. This is the mechanism through which
surplus value originates to the consumer and the producer likewise. Surplus value to the
producer is a result of the real process, and measured proportionally it means productivity.
Income Distribution Process
Income distribution process of the production refers to a series of events in which the
unit prices of constant-quality products and inputs alter causing a change in income
distribution among those participating in the exchange. The magnitude of the change in
income distribution is directly proportionate to the change in prices of the output and
inputs and to their quantities. Productivity gains are distributed, for example, to customers
as lower product sales prices or to staff as higher income pay. Davis has deliberated
(Davis 1955) the phenomenon of productivity, measurement of productivity, distribution
of productivity gains, and how to measure such gains. He suggests that the measurement
of productivity shall be developed so that it "will indicate increases or decreases in the
productivity of the company and also the distribution of the 'fruits of production' among
all parties at interest". According to Davis, the price system is a mechanism through
which productivity gains are distributed, and besides the business enterprise, receiving
parties may consist of its customers, staff and the suppliers of production inputs. Here,
the concept of "distribution of the fruits of production" by Davis is simply referred to as
production income distribution or shorter still as distribution.
Production Process
The production process consists of the real process and the income distribution process.
A result and a criterion of success of the production process is profitability. The profitability
of production is the share of the real process result the producer has been able to keep
to himself in the income distribution process. Factors describing the production process
are the components of profitability, i.e., returns and costs. They differ from the factors
of the real process in that the components of profitability are given at nominal prices
whereas in the real process the factors are at periodically fixed prices.
Productivity Model
The next step is to describe a productivity model by help of which it is possible to calculate
the results of the real process, income distribution process and production process. The
starting point is a profitability calculation using surplus value as a criterion of profitability.
The surplus value calculation is the only valid measure for understanding the connection
between profitability and productivity or understanding the connection between real process
and production process. A valid measurement of total productivity necessitates considering
all production inputs, and the surplus value calculation is the only calculation to conform
to the requirement.
The process of calculating is best understood by applying the clause of Ceteris paribus,
i.e. "all other things being the same," stating that at a time only the impact of one changing
factor be introduced to the phenomenon being examined. Therefore, the calculation can
be presented as a process advancing step by step. First, the impacts of the income
distribution process are calculated, and then, the impacts of the real process on the
218
profitability of the production.
Measuring and Interpreting Partial Productivity Technology Adoption and
Productivity
Measurement of partial productivity refers to the measurement solutions which do not
meet the requirements of total productivity measurement, yet, being practicable as
indicators of total productivity. In practice, measurement in production means measures
of partial productivity. In that case, the objects of measurement are components of total
productivity, and interpreted correctly, these components are indicative of productivity
development. The term of partial productivity illustrates well the fact that total productivity
is only measured partially - or approximately. In a way, measurements are defective but,
by understanding the logic of total productivity, it is possible to interpret correctly the
results of partial productivity and to benefit from them in practical situations.
Typical solutions of partial productivity are:
1. Single-factor productivity
2. Value-added productivity
3. Unit cost accounting
4. Efficiency ratios
5. Managerial control ratio system
Single-factor productivity refers to the measurement of productivity that is a ratio of
output and one input factor. A most well-known measure of single-factor productivity is
the measure of output per work input, describing work productivity. Sometimes it is
practical to employ the value added as output. Productivity measured in this way is
called Value-added productivity. Also, productivity can be examined in cost accounting
using Unit costs. Then it is mostly a question of exploiting data from standard cost
accounting for productivity measurements. Efficiency ratios, which tell something about
the ratio between the value produced and the sacrifices made for it, are available in large
numbers. Managerial control ratio systems are composed of single measures which are
interpreted in parallel with other measures related to the subject. Ratios may be related
to any success factor of the area of responsibility, such as profitability, quality, position on
the market, etc. Ratios may be combined to form one whole using simple rules, hence,
creating a key figure system.
The measures of partial productivity are physical measures, nominal price value measures
and fixed price value measures. These measures differ from one another by the variables
they measure and by the variables excluded from measurements. By excluding variables
from measurement makes it possible to better focus the measurement on a given variable,
yet, this means a more narrow approach.
Technology is productive if it appropriately suits requirements. Before adaptation of
technology, its appropriateness should be verified. Appropriateness can be judged on the
basis of following criteria: Effectiveness, Affordability, Cultural Acceptability, Local
Sustainability, Efficiency and Measurability.
Wealth lies not in inventing and discovering technology but in its application. Application
of technology requires a set of specific capabilities. Four different kinds of technological
capabilities are identified: acquisitive, operative, adaptive and innovative.
From an R&D perspective a company's technology can be of following types:
1. Core Technologies
219
2. Complementary Technologies
Technology Management 3. Peripheral Technologies
4. Emerging Technologies.

Check Your Progress

Prepare a report on the development of Tata Nano.

8.8 LET US SUM UP

Technology is rapidly changing our world. It is bringing us services facilities and comforts
beyond our grandparents' wildest dreams. It seems that with each year the pace of change
quickens. Each new process or invention makes still other advances possible. There are
numerous factors that have contributed to changes. Three important factors are: Technology
Explosion, Shortening of the Technical Cycle and Globalisation of Technology.
Technology enriches and eases daily life, but can carry with it unanticipated side effects.
It is important to consider the benefits compared with the costs--in terms of resources,
value and money--before and during the development of a technology. Technology involves
four main elements: 1. General theoretical and practical understanding of how to do
things (social knowledge). 2. Objects (goods). 3. Installed techniques of production
(processes). 4. The personal e and abilities of workers (skills). Four basic components
of technology may be identified Technoware, Humanware, Infoware and Orgaware.
Productivity is a measure of output to input. It is a measure of an employee's efficiency
in using the organisation's scare resources to produce goods and services. Productivity
may be conceived of as a metric of the technical or engineering efficiency of production.
Productivity is one of the most closely watched indicators of long-term economic
prospects. Rising productivity is the key to making possible permanent increases in the
standard of living.
A manager can improve productivity either by increasing the amount of output, using the
same levels of inputs or reducing the number of inputs needed to produce the output, and
sometimes he can do even both. There are three specific areas where productivity
improvements can bring success to an organisation.
Reengineering looks at what work is required to be done, not how the organisation is
structured. Organisation structures are defined only after the processes necessary to
produce products and services for the organisations customers are designed.

8.9 KEY TERMS

Technological Development: Technological development offers new possibilities to make
people's daily lives more healthy, safe, understandable, independent, fun and comfortable.
Adopting New Technology: The process of adopting a new technology is often very
costly due to a number of reasons. The new machines need to be purchased and often
the technology, as in the case of a CNC machine, is a specific asset; employees need to
be trained to operate the new technology.
Productivity: Productivity is a measure of output to input. It is a measure of an employee's
efficiency in using the organisation's scare resources to produce goods and services.
Technological Productivity: This can come through the use of more efficient machines,
220 robots, computers and other technologies, which increase outputs dramatically.
Worker Productivity: This means having workers produce more output in the same Technology Adoption and
Productivity
time period. Improved workplace design, proper use of rewards, empowerment of
employees, careful selection of talented people, etc. will help in keeping people on the
track and allow them to do things exceptionally well.
Managerial Productivity: This means that the mangers do a better job of running the
organisation. Management productivity increases when managers focus on quality
breakdown barriers, empower employees, create teams and do not overmanage using
numbers.
Real Process: Real process generates the production output from input, and it can be
described by means of the production function. It refers to a series of events in production
in which production inputs of different quality and quantity are combined into products of
different quality and quantity.
Surplus Value: Surplus value to the producer is a result of the real process, and measured
proportionally it means productivity.
Income Distribution Process: Income distribution process of the production refers to a
series of events in which the unit prices of constant-quality products and inputs alter
causing a change in income distribution among those participating in the exchange.
Production Process: The production process consists of the real process and the income
distribution process. A result and a criterion of success of the production process is
profitability.
Measuring Partial Productivity: Measurement of partial productivity refers to the
measurement solutions which do not meet the requirements of total productivity
measurement, yet, being practicable as indicators of total productivity.

8.10 TEST QUESTIONS

1. Discuss the concept of technology adoption and productivity.
2. Define adoption technology and human interactions.
3. What do you understand by the organisational restructuring and reengineering
process?
4. Analyze the concept of technology productivity and the basic principle of
reengineering?
5. Define reengineering. Illustrate the example of IBM.
6. What are the various components of BPR?

8.11 SUGGESTED READINGS

Gerard H. Gaynor, Handbook of Technology Management, Mc-GrawHill.
Noori H & Radford R.W., Reading and cases in the Management of New Technology,
Englewood Cliffs, N.J. Prentice Hall, 1990.
Bowonder B. and Miyake T., Technological forecasting, Methodologies and Case
Studies.
221
UNIT V
LESSON

9
TECHNOLOGY ABSORPTION AND INNOVATION
CONTENTS
9.0 Aims and objectives
9.1 Introduction
9.2 Technology Absorption and Innovation: Present Status in India
9.3 Need for New Outlook
9.4 Absorption Strategies for Acquired Technology
9.5 Creating New/Improved Technologies
9.6 Innovations
9.7 Innovations and Technological Change
9.8 Let Us Sum Up
9.9 Key Terms
9.10 Test Questions
9.11 Suggested Readings

9.0 AIMS AND OBJECTIVES

After studying this lesson, you will be able to explain:
1. The concepts of technology absorption and innovation.
2. The present status of technology in India.
3. The need for new outlook as regarding technology.
4. The absorption strategies for acquired technology.
5. The methods of creating new/ improved technologies.

9.1 INTRODUCTION
Absorption of technology, especially in the form of import, is at the centre of developing
countries tryst with (technological) catching-up. The astounding success of the Japanese
in converting imported technology into a decisive advantage with adaptation and
improvements has apparently fuelled this ambition. India invested heavily in technology
absorption, with several policies/programmes in the lead. Various initiatives have been
taken by Government of India to facilitate absorption are summarized. There are the
reasons and causes for the difference in performance of Indian industry from that of the
Japanese industry.
Technological innovation includes the process right from R&D to successful
commercialization in the marketplace. Innovation is a process that covers systemss
Technology Management everything, from invention to its first commercial use, and includes improvement in existing
technology.
Innovation is market driven. Innovation can also involve improving the performance of
the products/systems technique by adopting a change or using alternative technologies.
An innovative product also makes a leap in the benefits-to-costs ratio. Innovation is a
systematic, organized, rational task usually carried out many stages like analysis, tests,
experiment, etc.
Schumpeter's theory argues that successful innovation brings about techno-economic
growth. He believes that innovation is necessarily linked to the entrepreneur who derives
new economic combinations by means of introducing five parallel types of changes:
1. Introducing new products
2. Introducing new production functions that reduce the input needed to produce a
given output
3. Providing new consumers by opening new markets
4. Exploiting new sources of materials and
5. Reorganizing an industry.
Companies that have established themselves as technical and market leaders have
displayed an ability to develop successful new products. Leaders in industries from
aerospace to pharmaceuticals and from motor cars to computers have demonstrated
their ability to innovate.
Table 9.1: Industry and Innovative Products

Industry Market Leaders Innovative Products

Aerospace Boeing Passenger Aircraft
Pharmaceuticals Glaxo-Wellcome Ulcer Treatment Drug
Motor Car Mercedes, Ford Car Design and associated product development
Computers Intel, IBM, and Computer Chip Technology, Hardware,
Microsoft Software

9.2 TECHNOLOGY ABSORPTION AND INNOVATION:

PRESENT STATUS IN INDIA
Science and technology have been an integral part of Indian civilization and culture over
the past several millennia. Few are aware that India is the fountainhead of important
foundational scientific developments and approaches. These cover many great scientific
discoveries and technological achievements in mathematics, astronomy, architecture,
chemistry, metallurgy, medicine, natural philosophy and others. A great deal of this scientific
knowledge reached distant louds from India.
Equally, India also assimilated scientific ideas and techniques from elsewhere, with open-
mindedness and a rational attitude, characteristic of a scientific ethos. India's traditions
have been founded on the principles of universal harmony, respect for all creation and an
integrated holistic approach. This background is likely to provide valuable insights for future
scientific advances. During the century prior to Independence, there was an awakening of
modern science in India through the efforts of a number of outstanding scientists. They
226 were responsible for great scientific advances of the highest international calibre.
Thousand of years ago, many industries flourished in Harrapan towns (ancient Indian Technology Absorption and
Innovation
civilization), such as bead making, copper smelting, shell, pottery, jewellery and seal
making. Metallurgical processes and technology of a higher order became known in
India in around 1000 BC. India became renowned for making what came to be known
as Damascus Steel, later used in making swords of the finest quality. High carbon steel
was first produced near Hyderabad as early as the forth and fifth centuries BC.
The Iron Pillar at Delhi and iron beams used in the Konark Temple are classic and live
examples of Indian technology of yore. Also to India's credit goes the discovery and
extraction of zinc. Ancient India gave the world the decimal system and the concept of
the zero, even as it developed many advanced mathematical formulae. Medicine,
astronomy, metallurgy, hydraulics, navigation and food processing developed in India in
the earliest ages.
In the pre-independence era too India achieved remarkable success in the field of science.
Scientists like J.C. Bose, C.V. Raman, S.A. Ramanujam, S.N. Bose, Sir M. Visvesvaraya,
Birbal Sahni, P.C. Roy and M.N. Saha have made us proud.
Some of the remarkable achievements in the field of science and technology over last 50
years are listed as below:
l India's own satellites have soared into space on rockets developed by Indian
scientists indigenously.
l Indian super-computers confront the most complex strategic and civilian challenges.
Biotechnologists have produced the first leprosy vaccine.
l Alternative energy technologies are transforming life in isolated villages.
l When India initiated a space research programme, the world scoffed, and critics
declared that such research had no relevance in a poor and underdeveloped country.
India is, today, one of only seven nations in the world with its own satellite launch
capabilities.
l Development of remote sensing and communication satellites that encompasses
Mastery of solid propulsion fuels
Development of cryogenic engines
Development of closed loop control and guidance system
Development of strap-on staging satellite launch technologies.
l Satellite monitoring of earth-atmosphere-ocean systems has revolutionised the
forecasting and management of natural disasters. High speed computers run
sophisticated mathematical models to forecast extremes of weather, saving thousands
of lives every year.
Box 9.1: Satellite Monitoring
Death Toll in Machlipatnam due to Hurricane Intensity Cyclone

November 1977

Pre-Satellite Warning Systems Over 10,000

May 1990

After Installation of Satellite Warning Systems 956 227

Technology Management l Atomic research in India dates back to the 1940s, and by 1956 it bore fruit in Asia's
first nuclear reactor, Apsara. Today, India has an installed capacity of 1,840
megawatts of atomic power, and possesses the potential for setting up a thorium
based generating capacity of 200,000 Gigawatt years of electric energy. In the
process, Indian atomic scientists have successfully mastered the entire atomic fuel
cycle and production of atomic materials.
l India has developed three indigenous diagnostic kits for the detection of AIDS.
l A sophisticated liposome delivery system for drugs to cure fungal infections.
l Diagnostic kits for tuberculosis, Hepatitis-B, A & C, kala azar, and Japanese
Encephalitis in an advanced state of development.
l A wide range of bio-fertilizers and biological control agents to supplement and
reduce the use of harmful chemical pesticides and fertilizers. Developments in
drugs, therapeutics, medicine and the wider field of health services have resulted in
the doubling of life expectancy since Independence.
l Dreaded diseases such as smallpox have been completely eradicated.
l Defence research organisations have excelled in the development of missiles, and
India is more secure because of the wide range of tactical missiles now available
to the defence forces.
1. Prithvi: surface-to-surface tactical battlefield missile.
2. Akash: medium range surface-to-air missile.
3. Trishul: short range quick reaction surface-to-air missile.
4. Nag: a third generation antitank missile, rated among the best in the world .
5. Agni: re-entry missile with capabilities to perform as an intermediate range
ballistic system.
l A sophisticated low-level warning radar, Indra, has been developed
l Multi-barrel rocket system Pinaka has been developed.
l India has its own battle tanks: Arjun and Ajeya.
l India also has, to its credit, the development of fourteen new drugs, many of which
are now being exported.
l Compound rate of growth of IT industry has been: 55% over the last five years.
India commands over 16% of the world market for customised software services.
l India is now poised to emerge as a major manufacturing base and an exporter of
telecom equipment in the world. A number of world-class facilities for electronic
component manufacture have been established, and India now produces integrated
circuits and other components with the latest device geometry. Many MNCs like
GE have established R&D centres in India, the first outside of the US. Besides,
organizations like Intel, Motorola, Microsoft, Oracle, HP, etc., have their R&D and
manufacturing centres here. Nokia too is planning to establish its manufacturing
unit in India.

228
9.2.1 Science and Technology and Development of Indias Rural Technology Absorption and
Innovation
Economy
An appreciable quantum of research has taken place in all sectors of agriculture including
crops, horticulture, natural resource management, livestock, fisheries and agricultural
engineering. The Technology-led developments in agriculture have made India self-sufficient
in food grains and a leading producer of several commodities in the world. The Green
Revolution in crops, yellow revolution in oilseeds, white revolution in milk production, blue
revolution in fish production and a golden revolution in horticulture bear testimony to the
contributions of agricultural research and development efforts undertaken in the country.
India has received worldwide acclaim in the field of agricultural research and education.
The agricultural research system has significantly contributed to growth in productivity
in almost all the sectors of agriculture. For instance, with reference to 1950, the gains in
productivity are nearly 3.3 times in food grains, 1.6 times in fruits, 2.1 times in vegetables,
5.6 times in fish (aquaculture), 1.8 times in milk and 6.4 times in eggs. Development of
about 3,200 high yielding improved varieties of different crops and their production
technologies and preservation of 2.2 lakh germplasm accessions of agri-horticultural
crops and their wild relatives for future use in breeding programmes, are some remarkable
achievements of the National Agricultural Research System.
It is also revealing to note that modern technologies have contributed to saving of the
area , other resources and in increasing revenues and exports. For instance, modern
varieties of rice saved nearly 39 million hectares and the wheat varieties saved about 37
million hectares of area.
Green Revolution: The Green Revolution, marked by increases in productivity through
the use of high yielding technology and modern inputs, has been instrumental in the
impressive gains of food grain output in India. Food grain production increased almost
four-fold from about 50 million at Independence to more than 198 million metric tonne in
1996-97. Per capita availability rose from 395 grams per day to 578 grams in the same
period. The High Yielding Varieties (HYVs) of seeds formed the core of modern
agricultural technology. In addition, over 500 private seed companies are engaged in
their own research and also supply seeds and planting material to the farmers.
White, Blue and Yellow Revolution: The third phase of agricultural growth emanates
from the diversification and commercialisation of agriculture to high value crops,
horticulture, floriculture, animal husbandry, fisheries and sericulture. There has been
commendable progress in the field of dairy, oilseeds, sugarcane and cotton. With a 69
million tonne produce, India is one of the largest producers of milk in the world.
Milk production quadrupled from 17 million at Independence to 69 million metric tonne at
present (popularly known as the White Revolution). Fish production rose from 7.5 million
to nearly 50 million metric tonne during the last five decades (Blue Revolution). Oilseed
production increased five times from around 5 million to 25 million metric tonne since
Independence (Yellow Revolution). Today, India is the largest producer of fruits in the
world and the second largest producer of vegetables.
Liberalisation and technology-led development have opened new vistas for rural
development. Indian corporate is now investing in agricultural technology. Companies
like Pepsi, Macdonald's , Godrej, SriRam, HLL and ITC are investing heavily in agriculture.
What the Indian government couldn't do for India's rural economy in the last 55 years,
ITC has done with the help of information technology (for detail see the chapter Rural
Market). It uses information technology for:
229
Technology Management l Delivering real-time information and customise knowledge to improve farmers'
decision-making ability to align farm output to market demands and secure quality,
productivity, and improved price discovery.
l Aggregating demand in the nature of a virtual producers' cooperative to access
high quality farm inputs and knowledge at the lowest cost, and
l Setting a direct marketing channel virtually linked to the mandi system for the
purposes of price discovery, yet eliminating wasteful intermediation, multiple handling
and thus reducing transaction costs and making logistics efficient and cost effective.
Thus, modern technology is not only bringing wealth to India and its rural parts but is also
generating various business opportunities for the Indian corporate sector.
Table 9.2: Top 20 Innovative Companies in the World 2005 Poll of 940 Senior
Executive in 68 Countries by BCG (Boston Consultancy Group)

Ranking Company Response

1 APPLE 24.84%
2 3M 11.77
3 MICROSOFT 8.53
4 GE 8.53
5 SONY 5.94
6 DELL 5.62
7 IBM 5.29
8 GOOGLE 5.18
9 P&G 4.21
10 NOKIA 4.21
11 VIRGIN 4.00
12 SAMSUNG 3.89
13 WAL-MART 3.24
14 TOYOTA 3.02
15 EBAY 2.92
16 INTEL 2.70
17 AMAZON 2.70
18 IDEO 2.16
19 STARBUCKS 2.05
20 BMW 1.73
Source: Business Week Online , 1 August, 2005

Computerisation of equipment and machinery in the last quarter century has brought
phenomenal changes in the market place and the speed of change is likely to continue to
accelerate in the 21st century. Among todays important information technologies are
computers and computer networks, telecommunication systems, broadcast and
entertainment systems, document reproductions systems, and satellite communication
systems. Skilful management of this dizzying array of information technologies is no
longer a question of choice. It is a matter of competitive survival. Information, over the
years, has become a valuable strategic resource. Organisations using appropriate
information technologies to get the right information to the right people at the right time
will enjoy a competitive advantage. K Madigan, [Masters of the Game] reported in
230 Business Week, October 1993 thus: By linking its more than 2000 drug stores with an
on-line computer network and satellite communication system, Walgreen company has Technology Absorption and
Innovation
become a market leader in service, speed and quality. A Walgreen customer recently
wrote to the company with this anecdote; Escaping Hurricane Andrew, he forgot
several important prescriptions, so he went to a Walgreens in Bradenton and asked the
pharmacist to look up his record. Within minutes, the man had what he needed. The real
proof of the efficiency of Walgreens system. The mans last name is Smith! Information
technology, more importantly, creates innumerable alternatives, including the following
that simply were not feasible with older technologies:
Box 9.2: Information Technology Creates Options!

l Computer aided design linked to versatile, computer-controlled machines permits

short production runs of custom designs with economies of scale approaching those
of traditional large-scale manufacturing facilities.

l Customers can shop via home pages on the Internet and electronic shopping malls
more easily than using the yellow pages and telephones.

l With on-line real-time financial management systems, managers can find profit and
loss positions daily, which was not possible with manual methods and earlier stages
of computer technology.

l Retail banking customers (of say HDFC Bank, ICICI Bank, Citi Bank) can perform
numerous banking functions from remote locations, without having to visit the bank.

l Soon telephone, fax and computing will be fully integrated in handheld devices. For
example in Sweden, Ericsson, telephone customers already have personal cards that
they can slip into such a device and receive calls anywhere in their calling areas.
Personal Communicators made by Toshiba, Sony and others permit phone, fax and
computing with a pen input screen.

l Companies like Maruti Udyog Ltd, Hero Honda, AT&T, General Electronic can now
develop, make and distribute their products in a fraction of the time it took them a
decade ago.

(M Lansiti and J West, Technology Integration HBR, May-June 1997; Rick Tetzeli, The Internet and your
Business, Fortune, March 7, 1994; D Hellriegel et al., Management, South Western, Cincinati, 1999).

9.2.2 Technology Absorption

Technology recipient organisation should get ready with a technology transfer plan,
documenting various steps required to obtain technology as per a definite schedule.
Such a plan should cover important aspects such as: adaptability of technology, suitability
of local materials, equipment and other inputs, R&D facilities to be created, degree of
indigenisation needed, erection of plant, training of personnel at site, arranging for experts
from transferor company etc.
Box 9.3: BHELs Strategies for Absorption of Imported Technology

BHEL has adopted the following strategies for adaptation and absorption of imported
technologies:

l Action plan: Preparing a technology transfer plan, which is to be monitored

continuously for effective follow-up.

l Buy few designs only: Buying only a few designs and models from the collaborator
and developing the remaining designs to cover the entire range through in-house
R&D efforts (by direct or reverse engineering).
Contd... 231
Technology Management
l Train personnel: Training BHEL engineers in identified areas, after familiarising them
with documents, reports, computer programmes etc., received from collaborators.

l Analyse documents: Analysing documents and technical information received from

collaborators by the engineering and R&D groups; preparing special developmental
plans for import substitution, cost reduction, new product development keeping in
view the developments taking place internationally.

All the above steps are required for faster absorption of imported technology with an
ultimate goal of achieving self-reliance in technology.

9.2.3 Technological Innovation System

The Technological Innovation System is a concept developed within the scientific field
of innovation studies which serves to explain the nature and rate of technological change]
A Technological Innovation System can be defined as 'a dynamic network of agents
interacting in a specific economic/industrial area under a particular institutional
infrastructure and involved in the generation, diffusion, and utilisation of technology'.
The approach may be applied to at least three levels of analysis: to a technology in the
sense of a knowledge field, to a product or an artefact, or to a set of related products and
artefacts aimed at satisfying a particular [societal] function'. With respect to the latter,
the approach has especially proven itself in explaining why and how sustainable (energy)
technologies have developed and diffused into a society, or have failed to do so.
Table 9.3: Functions of Technological Innovation System

F1. Entrepreneurial At the core of any innovation system are the entrepreneurs. These risk
Activities takers perform the innovative commercial experiments, seeing and
exploiting business opportunities.
F2. Knowledge Technology research and development (R&D) are prerequisites for
Development innovation. R&D activities are often performed by researchers, but
contributions from other actors are also possible.
F3. Knowledge Diffusion The typical organisational structure of an emergent innovation system
is the knowledge network, primarily facilitating information
exchange.
F4. Guidance of the Search This system function represents the selection process that is necessary
to facilitate a convergence in development, involving, for example,
policy targets, outcomes of technical or economic studies and
expectations about technological options.
F5. Market Formation New technologies often cannot outperform established ones. In order
to stimulate innovation it is necessary to facilitate the creation of
(niche) markets, where new technologies have a possibility to grow.
F6. Resource Mobilisation Financial, material and human factors are necessary inputs for all
innovation system developments, and can be enacted through, e.g.,
investments by venture capitalists or governmental support
programmes.
F7. Support from Advocacy The emergence of a new technology often leads to resistance from
Coalitions established actors. In order for an innovation system to develop,
actors needs to raise a political lobby that counteracts this inertia, and
supports the new technology.

9.2.4 Background
The concept of a Technological Innovation System was introduced as part of a wider
theoretical school, called the innovation system approach. The central idea behind this
approach is that determinants of technological change are not (only) to be found in
232
individual firms or in research institutes, but (also) in a broad societal structure in which Technology Absorption and
Innovation
firms, as well as knowledge institutes, are embedded. Since the 1980s, innovation system
studies have pointed out the influence of societal structures on technological change, and
indirectly on long-term economic growth, within nations, sectors or technological fields.
The purpose of analysing a Technological Innovation System is to analyse and evaluate
the development of a particular technological field in terms of the structures and processes
that support or hamper it. Besides its particular focus, there are two, more analytical,
features that set the Technological Innovation System approach apart from other innovation
system approaches.
Firstly, the Technological Innovation System concept emphasises that stimulating
knowledge flows is not sufficient to induce technological change and economic
performance. There is a need to exploit this knowledge in order to create new business
opportunities. This stresses the importance of individuals as sources of innovation,
something which is sometimes overseen in the, more macro-oriented, nationally or
sectorally oriented innovation system approaches.
Secondly, the Technological Innovation System approach often focuses on system
dynamics. The focus on entrepreneurial action has encouraged scholars to consider a
Technological Innovation System as something to be built up over time. This was already
put forward by Carlsson and Stankiewicz:
'Technological Innovation Systems are defined in terms of knowledge/competence flows
rather than flows of ordinary goods and services. They consist of dynamic knowledge
and competence networks. In the presence of an entrepreneur and sufficient critical
mass, such networks can be transformed into development blocks, i.e. synergistic clusters
of firms and technologies within an industry or a group of industries.'
This means that a Technological Innovation System may be analysed in terms of its
system components and/or in terms of its dynamics. Both perspectives will be explained
below.
9.2.5 Structures
The system components of a Technological Innovation System are called structures.
These represent the static aspect of the system, as they are relatively stable over time.
Three basic categories are distinguished:
l Actors: Actors involve organisations contributing to a technology, as a developer
or adopter, or indirectly as a regulator, financer, etc. It is the actors of a Technological
Innovation System that, through choices and actions, actually generate, diffuse and
utilise technologies. The potential variety of relevant actors is enormous, ranging
from private actors to public actors, and from technology developers to technology
adopters. The development of a Technological Innovation System will depend on
the interrelations between all these actors. For example, entrepreneurs are unlikely
to start investing in their businesses if governments are unwilling to support them
financially. Vice versa, governments have no clue where financial support is
necessary if entrepreneurs do not provide them with the information and the
arguments they need to legitimate policy support.
l Institutions: Institutional structures are at the core of the innovation system concept.
It is common to consider institutions as 'the rules of the game in a society, or, more
formally, (...) the humanly devised constraints that shape human interaction'. A
233
Technology Management distinction can be made between formal institutions and informal institutions, with
formal institutions being the rules that are codified and enforced by some authority,
and informal institutions being more tacit and organically shaped by the collective
interaction of actors. Informal institutions can be normative or cognitive. The
normative rules are social norms and values with moral significance, whereas
cognitive rules can be regarded as collective mind frames, or social paradigms.
Examples of formal institutions are government laws and policy decisions; firm
directives or contracts also belong to this category. An example of a normative rule
is the responsibility felt by a company to prevent or clean up waste. Examples of
cognitive rules are search heuristics or problem-solving routines. They also involve
dominant visions and expectations held by the actors.
l Technological factors: Technological structures consist of artefacts and the
technological infrastructures in which they are integrated. They also involve the
techno-economic workings of such artefacts, including costs, safety, reliability. These
features are crucial for understanding the feedback mechanisms between
technological change and institutional change. For example, if R&D subsidy schemes
supporting technology development should result in improvements with regard to
the safety and reliability of applications, this would pave the way for more elaborate
support schemes, including practical demonstrations. These may, in turn, benefit
technological improvements even more. It should, however, be noted here that the
importance of technological features has often been neglected by scholars.
The structural factors are merely the elements that make up the system. In an actual
system, these factors are all linked to each other. If they form dense configurations they
are called networks. An example would be a coalition of firms jointly working on the
application of a fuel cell, guided by a set of problem-solving routines and supported by a
subsidy programme. Likewise, industry associations, research communities, policy
networks, user-supplier relations etc. are all examples of networks.
An analysis of structures typically yields insight into systemic features - complementarities
and conflicts - that constitute drivers and barriers for technology diffusion at a certain
moment or within a given period in time.
9.2.6 Dynamics of Technological Innovation Systems
Structures involve elements that are relatively stable over time. Nevertheless, for many
technologies, especially newly emerging ones, these structures are not yet (fully) in
place. For this reason, mostly, the scholars have recently enriched the literature on
Technological Innovation Systems with studies that focus on the build-up of structures
over time. The central idea of this approach is to consider all activities that contribute to
the development, diffusion, and use of innovations as system functions. These system
functions are to be understood as types of activities that influence the build-up of a
Technological Innovation System. Each system function may be 'fulfilled' in a variety of
ways. The premise is that, in order to properly develop, the system should positively fulfil
all system functions. Various 'lists' of system functions have been constructed. Authors
like Bergek et al., Hekkert et al., Negro and Suurs give useful overviews. These lists
show much overlap and differences reside mostly in the particular way of clustering
activities. An example of such a list is provided below.
Note that it is also possible that activities negatively contribute to a system function.
These negative contributions imply a (partial) breakdown of the system.

234
Seven System Functions Technology Absorption and
Innovation
As an example, the seven system functions defined by Suurs are explained here:
l F1. Entrepreneurial Activities: The classic role of the entrepreneur is to translate
knowledge into business opportunities, and eventually innovations. The entrepreneur
does this by performing market-oriented experiments that establish change, both to
the emerging technology and to the institutions that surround it. The Entrepreneurial
Activities involve projects aimed to prove the usefulness of the emerging technology
in a practical and/or commercial environment. Such projects typically take the
form of experiments and demonstrations.
l F2. Knowledge Development: The Knowledge Development function involves
learning activities, mostly on the emerging technology, but also on markets, networks,
users etc. There are various types of learning activities, the most important categories
being learning-by-searching and learning-by-doing. The former concerns R&D
activities in basic science, whereas the latter involves learning activities in a practical
context, for example in the form of laboratory experiments or adoption trials.
l F3. Knowledge Diffusion/Knowledge Exchange: The characteristic organisation
structure of a Technological Innovation System is that of the network. The primary
function of networks is to facilitate the exchange of knowledge between all the
actors involved in it. Knowledge Diffusion activities involve partnerships between
actors, for example technology developers, but also meetings like workshops and
conferences. The important role of Knowledge Diffusion stems from Lundvall's
notion of interactive learning as the raison-d'tre of any innovation system. The
innovation system approach stresses that innovation happens only where actors of
different backgrounds interact. A special form of interactive learning is learning-
by-using, which involves learning activities based on the experience of users of
technological innovations, for example through user-producer interactions.
l F4. Guidance of the Search: The Guidance of the Search function refers to
activities that shape the needs, requirements and expectations of actors with respect
to their (further) support of the emerging technology. Guidance of the Search refers
to individual choices related to the technology but it may also take the form of hard
institutions, for example policy targets. It also refers to promises and expectations
as expressed by various actors in the community. Guidance of the Search can be
positive or negative. A positive Guidance of the Search means a convergence of
positive signals - expectations, promises, policy directives - in a particular direction
of technology development. If negative, there will be a digression, or, even worse,
a rejection of development altogether. This convergence is important since, usually,
various technological options exist within an emerging technological field, all of
which require investments in order to develop further. Since resources are usually
limited, it is important that specific foci are chosen. After all, without any focus
there will be a dilution of resources, preventing all options from prospering. On the
other hand, too much focus may result in the loss of variety. A healthy Technological
Innovation System will strike a balance between creating and reducing variety.
l F5. Market Formation: Emerging technologies cannot be expected to compete
with incumbent technologies. In order to stimulate innovation, it is usually necessary
to create artificial (niche) markets. The Market Formation function involves activities
that contribute to the creation of a demand for the emerging technology, for example

235
Technology Management by financially supporting the use of the emerging technology, or by taxing the use of
competing technologies. Market Formation is especially important in the field of
sustainable energy technologies, since, in this case, there usually is a strong normative
legitimation for the intervention in market dynamics.
l F6. Resource Mobilisation: Resource Mobilisation refers to the allocation of
financial, material and human capital. The access to such capital factors is necessary
for all other developments. Typical activities involved in this system function are
investments and subsidies. They can also involve the deployment of generic
infrastructures such as educational systems, large R&D facilities or refuelling
infrastructures. In some cases, the mobilisation of natural resources, such as biomass,
oil or natural gas is important as well. The Resource Mobilisation function represents
a basic economic variable. Its importance is obvious: an emerging technology cannot
be supported in any way if there are no financial or natural means, or if there are
no actors present with the right skills and competencies.
l F7. Support from Advocacy Coalitions: The rise of an emerging technology
often leads to resistance from actors with interests in the incumbent energy system.
In order for a Technological Innovation System to develop, other actors must
counteract this inertia. This can be done by urging authorities to reorganise the
institutional configuration of the system. The Support from Advocacy Coalitions
function involves political lobbies and advice activities on behalf of interest groups.
This system function may be regarded as a special form of Guidance of the Search.
After all, lobbies and advices are pleas in favour of particular technologies. The
essential feature which sets this category apart is that advocacy coalitions do not
have the power, like for example governments, to change formal institutions directly.
Instead, they employ the power of persuasion. The notion of the advocacy coalition
is based on the work of Sabatier, who introduced the idea within the context of
political science. The concept stresses the idea that structural change within a
system is the outcome of competing interest groups, each representing a separate
system of values and ideas. The outcome is determined by political power.
9.2.7 Cumulative Causation
Since Carlsson and Stankiewicz introduced the concept of a Technological Innovation
System, an increasing number of scholars have started focusing on dynamics. A recurring
theme within their studies has been the notion of cumulative causation, closely related to
the idea of a virtuous circle or vicious circle, by Gunnar Myrdal.
In this context, cumulative causation is the phenomenon that the build-up of a Technological
Innovation System accelerates due to system functions interacting and reinforcing each
other over time. For example, the successful realisation of a research project, contributing
to Knowledge Development, may result in high expectations, contributing to Guidance of
the Search, among policy makers, which may, subsequently, trigger the start-up of a
subsidy programme, contributing to Resource Mobilisation, which induces even more
research activities: Knowledge Development, Guidance of the Search, etc. System
functions may also reinforce each other 'downwards'. In that case interactions result in
conflicting developments or a vicious circle! Recently scholars have increasingly paid
attention to the question of how cumulative causation may be established, often with a
particular focus on the development of sustainable energy technologies.
Governmental decisions to support some technologies and not others have a significant
impact on technological innovation. For instance, the decision to support the space program
236 had major impacts on miniaturization in the electronics industry, on the use of new materials
and styles in the garment industry, and even on the look of television commercials. The Technology Absorption and
Innovation
federal government's decision not to support the SST affected the technology of air
transport in the United States. if technological forecasting predicts that a certain capability
is technologically within our reach in the near future, and if the government chooses to
support research in this area, it is much more likely that the technology will be developed-
for example, new approaches to the generation of electric power. if the government
decides to finance implementation of the desired innovation, there will probably be a
near-term impact on profits and the speed of diffusion of the new technology.

9.3 NEED FOR NEW OUTLOOK

A growing body of evidence suggests that just as companies are facing an ever increasing
pace of technological change their rate of investment in research and development is
undergoing close scrutiny and firms are unable to respond effectively. The greatest
concern arises over the development of a productivity decision support system for research
driven innovation projects and then applying information from the system to manage the
portfolio of projects for the benefit of the enterprise. To address this concern, we review
the research-based history of measuring R&D productivity and we then present a new
decision support model to measure and manage its technology commercialization process.
The model consists of a set of attributes which includes financial, technology and product
life cycles, markets and intellectual assets. The inter-relationships among these attributes
can be visually displayed. The integration of all attribute information leads to better
informed management decisions for value creation.
The fierce domestic and foreign competition during the past decade has brought out a
new emphasis on in-house development of technology in organisations. Over the years,
technological change and innovations have become very essential for corporate survival
and growth. Consider some examples here. General Electrics Major Appliances Business
Group discovered the hazards of failing to innovate when Whirlpool quietly introduced a
number of novel features that virtually wiped out GEs lead in side-by-side refrigerator-
freezers. The GE appliance had remained essentially unchanged (like our own Ambassador
car, Bajaj scooter, etc.) for almost 15 years. Likewise, although the video cassette recorder
(VCR) was an American invention, originally conceived by Ampex and RCA in the
1960s, US manufacturers failed to persist in developing the technology into a successful
product. Consequently, Japanese manufacturers succeeded in monopolising the entire
US market for VCRs. When two Japanese companies, Yamaha motor and Honda motor,
were competing for the Japanese motor cycle market in the early 1980s, Yamaha declared
that it would surpass Honda. Unfortunately for Yamaha, Honda reacted by flooding the
Japanese market with new models, sometimes at the rate of one per week. Continually
compelled to discount obsolete models, Yamaha motor lost $300 million in two years (A
Tanzer). Events like these have caused managers to become increasingly interested in
issues relating to Research and Development and in-house development of technology.
9.3.1 Research and Development Issues
Firms can significantly improve operations by putting more emphasis on research and
development. R&D spending helps identify new products, new users for existing products
and new methods for making products. Each of these significantly contributes to
productivity. As we all know, new product innovations such as chilled prepared meals
(Marks and Spencer), the compact disc (Philips) and the anti-lock braking system for
cars (Bosch) took place in companies with established R&D strategies. For example,
Bausch & Lomb almost missed the boat on extended wear contact lenses because the
237
Technology Management company had discounted R&D. When Bausch & Lomb became aware that its principal
competitors were almost a year ahead in developing the new lenses, management made
R&D a top priority item. As a result, the company made several scientific breakthroughs,
shortened the time required to introduce new products and greatly enhanced both total
sales and profits and all with a smaller workforce than the company used to employ
(Griffin 644). Firms that lag behind in the technology race find it extremely difficult to
recover lost ground. Philips, for example, marketed the first VCR in 1972, getting a three
year lead on its Japanese competitors. But in the seven years that it took Philips to
develop its second generation of VCR models, Japanese manufacturers had come out
with at least three generations of new products. A victim of its own complacency, Philips
never recovered from the Japanese onslaught. As Kotler remarked in todays fast
changing, fiercely competitive world, turning out new products too slowly can result in
product failures, lost sales and profits and crumbling market positions (P. 321).
Box 9.4: How Dr. Reddys Laboratories Ltd (DRL) Handles R&D Issues?

Drug discovery is a time-consuming, high-risk process. Globally, the money spent on a new
drug is as high as $800 million and upto seven years can elapse between the discovery and
the launch. To optimise its R&D spend, DRL restricts the research universe to its strength
areas which are organic chemistry and natural products. Second, the company collaborates
on research with laboratories in India and abroad besides outsourcing 50 per cent of its
toxicology that is, chemical development inputs. Finally, it stops short of clinical trials,
selling the technology to someone who is willing to do that (the clinical-trial costs are
prohibitively high). With investments of less than Rs 50 crore and around 230 scientists,
the company has successfully turned out 17 patents in the US during the last two decades.
The companys anti-diabetes molecule DRF-2593 has been licensed to NOVO Nordisk at
an attractive price. Normally, an average performing company files 2.5 patents for $10
million R&D spend; whereas DRL has filed 36 patents during the last 5 years! DRF-2593,
DRF-2725, DRF-1644 (anti-cancer molecules) are currently undergoing clinical trials and in
addition to $8 million that it has received as milestone payments for DRF-2593, it is expected
to receive $15 million very soon. On a projected turnover of Rs 1,000 crore for 2000.1 the
company spends less than 5 per cent on R&D and to further optimise the R&D expenditure
it has useful tie-ups with national (ISC, Bangalore; IICT, Hyderabad) and International
research outfits (NOVO Nordisk, National Cancer Institute, USA).

Source: Business Today 7-1-99; Business India, March 19-April, 2001.

9.3.2 R&D Issues and Strategies

The traditional model of innovation calls for the R&D department to come out with a
novel idea and research it, then have an engineering design, which they present to the
manufacturing department to produce and finally over to sales to sell. Such a sequential
process may pose several hurdles on the way. The manufacturing department may send
the design back to the engineers expressing inability to produce it at the targeted cost;
the engineers may spend time to redesign the whole thing only to be told by sales people
that the product cant be sold because customer needs have either not been met fully or
have changed. The parties involved in the sequential play, thereafter, indulge in mutual
recrimination and shifting of blame when the idea fails to deliver the goods.
To speed up innovation and new product development, companies, therefore, follow a
team-oriented approach and striking right chords between R&D, engineering,
manufacturing, purchasing, marketing and finance departments from the beginning. Most
successful Japanese firms take up new product ideas from a marketing point of view
and create a cross-functional team to guide the project through its development. They
also bring customers in at an early stage to get their views.
238
 Box 9.5: What do you Mean by Innovation? Technology Absorption and
Innovation
Innovation is the process of creating and implementing a new idea. Because new ideas can
take many forms, many types of innovation are possible. Technical innovation is the creation
of new products and services. Process innovation involves creating a new means of producing,
selling and or distributing an existing product or service. Administrative innovation takes
place when creation of a new organisation design better supports the creation, production
and delivery of products and services (virtual teams, IT systems etc). Innovations in
organisations can range from radical new breakthroughs (such as laser technology) to small,
incremental improvement (such as an improved paper tray on a computer printer). Although
radical advances are important to many firms, incremental improvements also can be beneficial.
Japanese firms are known for their ability to enhance products and services through a variety
of small, incremental improvements. For example at the Japan-based Matsushita Electric
Industrial company a team of 100 technicians, PhD scientists and factory engineers persisted
for 8 years before developing an improved glass lens for use in projection televisions and
several laser-based products, such as video disc systems and compact disk players. Moreover,
the new lenses can be made for 90 per cent less than the cost of existing lenses. Thus, a
relatively modest goal improving a component in successful products led to a rapidly
expanding market share for the company, especially for use in compact disk players.
5 Cost Cutting Innovations: (Supply chain)
l Airfright has reduced its paper costs by using smaller bills and centralising purchases.
l DCM Shriram invests in laying railway-sidings itself, lowering its demurrage costs by
80 per cent.
l Godrej-GE has made vendors provide cellphones to truck drivers to coordinate JIT delivery.
l Hero Cycles has replaced transporters contracts with daily deals based on competitive
quotes.
l Wipro Peripherals selects only vendors located within 50 kms of its plant, cutting
transport costs.

Source: Business Today, Jan 7, 1999.

Historically, new product ideas have failed to yield good results not because they are
scientifically tested but because they failed to take note of customer preferences and
incorporate them in the product in appropriate measure. For example, the Maxwell House
Division of General Foods found that consumers wanted a brand of coffee that was bold,
vigorous and deep tasting. Its laboratory technicians spent over four months working with
various coffee brands and flavours to formulate a corresponding taste. It proved very
costly to produce and the company cost reduced the blind to meet the target manufacturing
cost. The change compromised the cost, however, the new coffee brand failed to sell in
adequate members in the marketplace. To avoid such costly mistakes companies usually
follow a stage gate system. The Minneapolis based 3M company makers of more than
6,000 products including sand paper, adhesives, floppy discs, contact lenses, overhead
projectors etc-uses this system. The company launches more than 200 new products every
year encouraging employees to become product champions by taking up projects of
personal interest. The innovation process is divided into distinct stages. At the end of each
stage is a gate or checkpoint. The project leader working with a cross-functional team
must bring a set of known deliverables (customer needs survey, technical analysis,
competitive analysis, other evidence, etc.) to each gate before the project is passed on to
the next stage. Senior managers act as gate keepers and review the criteria carefully to
judge whether the project can be moved to the next stage. The gate keepers make one of
the four decisions: go/kill/hold/recycle. The project leader and the leader know the criteria
they must meet at each stage. They are expected to drive the project from its beginning to
239
Technology Management the time it is launched or killed. Employees are given a free hand to experiment with ideas.
Laboratory staff, for example, are free to devote 15% of their time on developing personal
ideas; moreover they are free to work in their own preferred way. Technicians are
encouraged to talk with customers; internal networking is also fostered. The company
gives a $ 50,000 award each year to the scientist or group of scientists that develops the
biggest commercial breakthrough. One well known slogan at 3M is you have to kiss a lot
of frogs to find a prince (60% of creative ideas suggested do not succeed any way in the
market). Not surprisingly 3M generates, through its 40 divisions, at least 25% of its income
from products introduced within the preceding five years!
Box 9.6: Entrepreneurship Gives the Edge!

One way to keep innovation within the organisation is to create conditions in which
entrepreneurs can flourish. Entrepreneurship is the process whereby an individual sees the
need for innovation and promotes it within the organisation. As we all know, even the best
ideas need venturing, support and financing in an organisation. The following guidelines
help in creating an encouraging climate for promoting innovation within a company (Hodgetts).

l Encourage action

l Use informal meetings wherever possible

l Tolerate failure and use it as a learning experience

l Be persistent in getting an idea to the market

l Reward innovation for innovations sake

l Plan the physical layout of the firm to encourage informal communication

l Encourage clever boot legging of ideas

l Organise people into small teams for future-oriented projects

l Strip away rigid procedures and encourage personnel to go around red tape when
they find it

l Reward and/or promote innovative personnel.

9.4 ABSORPTION STRATEGIES FOR ACQUIRED

TECHNOLOGY
With the breadth of options that a company has to consider, it must have the internal ability
to logically consider all of them and decide which is most appropriate. This ability must
span technical and nontechnical issues. A company with internal technical strength is tempted
to always develop technology when other forms of acquisition may be a better choice from
a financial or long-term relationship perspective. On the other hand, a company without
any technical strength is at a great disadvantage when it comes to managing a development
project conducted by an outside R&D organization or licensing a technology. Companies
acquiring technology from external sources must have sufficient capabilities inside the
company to understand the advantages and disadvantages of the choices before it. Lacking
a technical person who understands the technological aspects of the opportunity well enough
to discern the pros and cons of the various options, will leave the decision making entirely
to those who will decide based on price or long-term relationships. A company must make
decisions based on an informed understanding of all technical and nontechnical issues if it
is to have a successful technology transfer. This section will provide some information that
240 will help you choose among technology acquisition options.
Option 1 - Seizing Tacit Knowledge... Technology Absorption and
Innovation
Seizing Tacit Knowledge
Companies should make a conscious effort to document the tacit knowledge of its
employees. Thorough documentation would convert the tacit knowledge to codified
knowledge making it readily transferrable. However, since tacit knowledge is the result
of experience it is by definition constantly changing. Codifying tacit knowledge runs the
risk of stifling innovation by forcing everyone to conduct an activity according to the
instructions that result from the codified knowledge.
The solution is to create an environment where tacit knowledge is transferred with a
minimal amount of codifying. One method is to rotate employees through a variety of
jobs. This creates the situation where each employee is constantly learning from other
employees about how to perform new job functions. The tacit knowledge that already
exists is taught to the person new to the job by one that already has significant experience.
The person learning the new job acquires tacit knowledge that may enhance his/her
regular function. The person experienced in a job, has the opportunity to learn from the
new person components of his/her tacit knowledge from another application that can
enhance the job being taught.
The investment in having many people spend the time it takes to come up the learning
curve on many job functions is more than made up by the following benefits:
Tacit knowledge is spread throughout the organization resulting in innovations and
productivity gains in other parts of company.
The company is not vulnerable to having key pieces of tacit knowledge contained in one
of a few people.
Employees are motivated to innovate because they see their job security increase with
the knowledge to perform more than one job and their job satisfaction increased by the
increased variety of work.
Seizing tacit knowledge has low cost and low risks because the knowledge already
exists. It will improve processes in other parts of the company and will not leave the
company when a key person leaves. The costs involved include the fact that productivity
will suffer in the short term because more people are on learning curves, and job functions
that could be done by one will at times be staffed by an expert and a learner. There will
also be some costs for documentation and in-house training.
Option 2 - Internal R&D...
Internal R&D
Technology acquisition via internal R&D consists of having a research and development
group within the company that creates the technology that the company uses. The size
of the group relative to the size of the company is dependant partly on the degree of
sophistication of the niche that the company serves and partly on the attitude of
management toward the value of technology and technology development. Although no
one is entirely free of influence from outside sources, we are using the term "internal
R&D" to describe the form of technology acquisition that uses creation of new technology
based on ideas from within as its primary methodology. This is to be distinguished from
"internal R&D with networking" (to be discussed next) that, although the company's
technology development activities are done within the company, its R&D staff puts
some concerted effort into knowing what others in their field are doing. 241
Technology Management Having an internal R&D group is surprisingly common with small companies. Many
small companies have grown from the development of a new product idea by the company
founder. This has often led to the creation of a small group in the company called R&D
that continues to improve the existing product by developing solutions to problems that it
may have, creates related products such as ones with higher capacity or more features,
and develops other products the company could make in the future. The internal R&D
groups in small companies are really product development groups that do almost no
research. In fact, if the strict definition of technology is used, they often do not develop
technology. Rather, they assemble existing technologies into products that can be made
and sold by the company. Since the products tend to take on the characteristics of unique
technologies they become treated as a technologies in their own right.
Internal R&D groups in small companies tend to suffer in a number of ways. They often
lack the technical strength to do the function required of them. Many R&D groups have
either no engineers or are staffed by very junior engineers. They are often managed by
an owner or another long-time employee that has much experience but very little
theoretical education. These people, because they have no idea what engineering can
do, will not let the engineers do engineering. Rather, they conduct product development
by trial and error. This limits the degree to which the R&D group can develop excellent
technologies and products. They are often very poorly funded which even further limits
their ability to accomplish their goals.
In spite of these common shortcomings, companies with internal R&D have some
significant advantages. They know their products from a hands-on perspective. They
understand the technologies used in the product. When the product fails or when related
opportunities are discovered in the market, they can react quickly. Because they have
created the products or technologies that they sell, their products tend to be unique. This
gives them a basis for a competitive advantage. When a competitor develops an improved
version of their product, they are better able to understand the technology behind the
improved product and create an even better one.
Internal R&D has an additional advantage in some environments. Many governments
encourage the creation of technology by offering development grants or tax reduction
incentives. Companies in countries with these incentives can have a portion of their
technology acquisition costs paid by the government.
Internal R&D has several significant disadvantages when compared to some forms of
external technology acquisition. Developing technology usually takes longer, often
significantly longer, than acquiring and adapting already-developed technology. This means
that the company acquiring technology from an external source will generally get their
product to the market sooner than the one developing internally. It will be making a
return on its investment while the internal R&D company is still investing. If the company
first in the market handles the business properly, they will be very difficult for the second
company to dislodge as the preferred supplier. This situation is complicated further by
the fact that not only does internal development take longer, the length of time is also
unknown. There is a significant risk that the project will not be completed by the time
projected and that the actual completion, even after it has passed the original planned
completion date, will still be very difficult to establish.
In-house development is often more expensive than acquiring technology externally.
This is because the developing company, especially if it is small, will generally be
limited in the areas of technical capability of its staff and equipment. In addition, a
company offering a technology for sale is generally making its main revenues from the
242 sale of the products it has developed. It does not have to recover its development
costs from the sale of technology. In fact, any amount recovered in this fashion may Technology Absorption and
Innovation
be considered as a windfall. Therefore, it will often offer technology for sale at less
than the full development costs.
Risk of failure is another disadvantage that must be addressed when considering internal
R&D. There is always some risk that an R&D project will not accomplish its goals. The
more difficult the project and higher the risk. There are some risks with acquiring and
implementing existing technology as well, but with good planning and execution these
can be managed. However, some things either cannot be done at all or cannot be done
by the company with the knowledge, experience and facilities available to it. If the
project fails to accomplish its goals, the company loses twice. It loses the money invested
in the development and the time spent conducting the R&D that could have been spent
implementing known technology. These losses can be significant enough to be fatal.
The cost factors involved with internal R&D include acquiring and paying for the staff,
equipment, and space for offices, laboratories and prototyping shop space. This cost
alone relative to other sources of technology may be enough to lead a company to not
choose internal R&D. It may also indicate preference for use of a combination of small
internal R&D capability and external sources of technology. This is especially true for
companies either in the start-up phase or those that have not had an internal R&D
function to this point.
Option 3 - Internal R&D with Networking...
Internal R&D with Networking
Internal R&D with networking has all the same advantages and disadvantages discussed
under Internal R&D. The main difference is the fact that the R&D staff make a fairly
concerted effort to keep current on the state of development of the technologies affecting
their products. They network with technology creators at conferences and trade shows.
They follow technological developments published in magazines and journals. They follow
the developments made by their competitors by reading magazines, journals, and sales
literature where competing products are discussed. They attend meetings, demonstrations,
and trade shows where their competitors' products are on display.
This adds some up-front costs to operating an internal R&D group, but provides the staff
with exposure to other ideas. It keeps them from "re-inventing the wheel". It reduces the
risk of failure because the staff is working with a better knowledge base. For the same
reason, it reduces the time to market which more than makes up for the added costs for
networking activities. The only possible disadvantage of this approach when compared
to pure internal R&D is the possibility that the staff's inventiveness will be curtailed
because their vision may become limited by the alternatives exhibited by their competitors.
This approach actually improves the company's external technology acquisition
capabilities. Its R&D staff are familiar with options that are readily available in the
market. This uncovers technology acquisition options that might not be considered by a
purely internal R&D company.
Option 4 - Reverse Engineering...
Reverse Engineering
Reverse engineering is the determining of the technology embedded in a product through
rigorous study of its attributes. It entails the acquisition of a product containing a technology
that the company believes would be an asset, disassembling it, and subjecting its
components to a series of tests and engineering analysis to ascertain how it works and 243
Technology Management the engineering design criteria used in the product's creation. The tests used depend on
the technologies involved. For example, mechanical devices require physical measurements
including the measurement of many duplicate pieces to learn the statistical tolerances
involved in the original design. They require structural tests to learn about deflection
versus load, chemical tests to accurately determine the material from which the piece
was made, abrasion tests to determine the wear capabilities, etc. Similarly, electronic
products have a series of tests that can be conducted to determine the design characteristics
of the products, chemical products have another set, and so on.
Reverse engineering requires a very good understanding of the application the product
being studied is used in so that the tests used to ascertain its design criteria are appropriate.
It also requires strong engineering capability. To be a good reverse engineer, one must be
a good design engineer. He/she must understand engineering principles very well. He/
she must be able to design and conduct tests that produce the kind of engineering data
that can be used to produce a design capable of duplicating the original product. A
person (or company) with a build-and-try design strategy will not have the capability to
reverse engineer products. The materials, the tolerances, the shapes, the assembly of
the original product all have design implications and the reverse engineer must understand
them.
Reverse engineering is a serious discipline in the automobile and machinery industries.
Before designing competing products, companies reverse engineer their competitors'
products to ascertain their strengths and weaknesses. New designs maintain the strengths
and solutions are developed for the weaknesses resulting in a competing product that is
better than the originals. Reverse engineering is less costly, less risky, and takes less time
to market compared to internal R&D. It creates the opportunity to result in a product
that meets the competition in all its areas of strength and has a competitive advantage in
the competitor's areas of weakness. On the negative side, it has the potential to result in
a "me-too" product. Me-too products are essentially the same as the competitor's and
offer the customer no reason to switch from the competitor. There is the possibility that
the reverse engineering team did not properly understand the original design and the new
product is actually poorer than the one studied. There is also potential that the reverse
engineered product infringes on patents or other legal protection the original product has,
leading to legal costs.
Option 5 - Covert Acquisition with Internal R&D...
Covert Acquisition with Internal R&D
Covert acquisition has similarities to reverse engineering. However, it is less above board.
It entails finding out about technology developments being conducted by a competitor
that are not open to the public. Most companies do this to some extent by questioning
suppliers about components being sold to the competitor or by socializing with the
competitor's employees. The less scrupulous companies become involved in industrial
espionage using cameras, binoculars, and break-and-enter techniques to learn about the
happenings inside the competitor's plant.
Using internal R&D along with covert acquisition has the same benefits as reverse
engineering. It can result in a product that is similar but not exactly a me-too product.
Internal R&D can improve upon the competitors product by adding value and solving
technical problems it may have. Companies that are good at covert acquisition and internal
R&D can capitalize on being second into the market because they can improve upon the
introducer's mistakes.
244
Costs, risk, and time to market can all be reduced. However, risks include being sued Technology Absorption and
Innovation
and developing a reputation of being an unscrupulous company. Customers who would
otherwise appreciate the lower price or improved product that a company with this
strategy can offer, may also be unwilling to give their business to this company. They
may have the thinking that anyone who would "steal" product ideas and technological
knowledge is not to be trusted in business dealings. In situations where the ratio of
covert acquisition to internal R&D is high, a company may not develop much technical
strength and may produce a me-too product. This situation results in a company that is
less able to adapt to changes in the market and more likely to be sued for infringing on
the rights of its competitor.
Option 6 - Covert Acquisition...
Covert Acquisition
Covert acquisition without internal R&D guarantees the product will be a copy (generally
a poor copy) of the competitor's product. The company can introduce it at a lower price
because there are no development costs to recover. However, with the exception of
price, the product will have no competitive advantage. Without internal R&D it is likely
that the product will not be copied accurately and the product will actually be worse than
the original. A company with this technology acquisition strategy is likely to have inferior
products, an inability to improve its products, an inability to deal with technical problems
the products may have, a poor image, and high legal costs.
Option 7 - Technology Transfer and Absorption...
Technology Transfer and Absorption
Technology transfer and absorption is similar to Internal R&D with networking. The
difference is that there is much more effort put into searching for, learning about, and
translating existing, no-cost technologies to the company's applications. Internal technical
capability is required to understand the technologies found and to develop them into
solutions for the company's applications. This approach is relatively low cost because
the external technology is not paid for. Internal costs include the salaries of the internal
technical staff, search and networking costs and the development of company-unique
equipment using the technology found in public sources. Depending upon the degree of
in-house development required, lab and shop space may also be required to build and test
prototypes and final solutions.
Technology transfer and absorption is most often used with process technologies. An
example would be where the company finds a process technology that has been invented
by a university or government institution, and applies the technology to its own production
line by acquiring components and attaching them to its existing equipment. Another
example is the situation where a company acquires the components of a technology that
is proven in one application and installs them in a completely new application. Both of
these have less risk compared to internal R&D because the technology has been shown
to work in some situations. However, it is still quite risky due to the potential for not fully
understanding the technology, the application, and the interaction between the technology
and the application.
A company employing this type of technology acquisition is using externally developed
technology with little possibility for acquiring support. On one hand, this helps develop
technical capability because company personnel are forced to work with the technology
in a hands-on fashion. On the other, the lack of readily-available support results in many
245
Technology Management mistakes and wrong decisions. Generally companies that take this approach do not like
to pay for technology. They prefer to develop things themselves, although they are more
than willing to acquire technology from any external source than those employing internal
R&D, provided the technology itself is no cost. With the right team of in-house expertise
this can be a very effective form of technology acquisition. However, if the approach
results in the application of new technology to an application without enough attention to
detail, it can have disastrous results.
Option 8 Contact R&D...
Contract R&D
Companies choose to contract research and development for a variety of reasons. This
is an ideal option for those that lack the necessary facilities and expertise to conduct the
required work but still want to maintain control over the development and own the results
exclusively. It is also a good choice for those that need a specialized set of equipment or
expertise for occasional short-term projects. This avoids the investment in these facilities
and the ongoing commitment to staff that would normally be underutilized. It allows
short-term access to world-class personnel and facilities for specialized projects that
would otherwise be completely beyond the company's means.
Some companies with strong internal R&D still choose to contract out R&D projects.
One successful strategy is to maintain internal strength in technologies core to the
company's business. R&D needs in other areas are contracted out. This ensures that
developments crucial to the company's success are conducted under the company's roof
while those that are important for a project, but not for the company's overall business
are done by those more expert in the field. A simple example is a electronics product-
oriented company doing its electronic and software developments in house while
contracting mechanical aspects of product development and its process development
activities to others. Another successful strategy is to occasionally contract R&D in core
technology areas as well. This exposes the company's R&D personnel to technology
experts in other environments. This form of technology acquisition has the side benefit
of staff enrichment.
Contracting R&D reduces the company's hands-on experience with the technology. Those
companies most successful at contracting R&D have an internal project manager who is
well versed in the technology involved. This enables the company to acquire the benefits of
avoiding investment that would be underutilized and accessing highly-specialized people
while still maintaining control and learning from day-to-day happenings on the project.
Although contract R&D offers the benefit of acquiring external technology without sharing
ownership, it is more difficult to keep the work confidential. Care must be taken to ensure
that the contracting organization meets the company's confidentiality standards.
The following checklist will help when searching for an R&D supplier:
l necessary skills (technical and business)
l track record
l confidentiality
l facilities
l communication skills
l specialized expertise in desired technology area
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Project managers must be capable and willing to deal with contractual issues. Many Technology Absorption and
Innovation
contract R&D performers are experts in their technology areas, but are quite poor in the
contracting side of the business. Having a standard contract which contains a standard
set of the company's requirements will help when dealing with these organizations. Key
issues to be addressed are ownership of technology, confidentiality, deliverables, schedules,
price, project communications, and consequences for not meeting commitments.
Companies must be willing to be flexible on the consequences aspect considering the
unpredictable nature of R&D. However, scientific institutions can be more interested in
the science discoveries that the R&D may uncover than the company's welfare. Company
project managers have to convey to the contractor that the decision to contract R&D
was a business one and the results of the work have serious impacts on the company's
business. Regular project communication is essential because issues like delays or
unexpected findings can be discovered early and adjustments can be made.
The following must be addressed in the contract
l clear deliverables
l clear milestones (schedule)
l ownership of technology
l communications plan
l contingency plan (exit clause)
On the surface, contracting R&D has the same risks of failure as internal R&D. However,
with the selection of the right contractor for the work required, the company should be
able to have a more capable team than it could assemble internally. So, provided the
contractual and communication issues are handled properly, the risk of project failure
should be reduced. The company has to be especially careful that overall failure does
not happen at the next step, which is the introduction of the results to an application in the
company. It must be sure that it fully understands the results in light of the company's
application.
Option 9 - R&D Strategic Partnership...
R&D Strategic Partnership
R&D strategic partnerships have much in common with contracting R&D. They generally
consist of a group of companies with a common need that collectively contract a research
institution to conduct the work for them. This allows the companies to share the risk and
cost. It also creates a situation where they can learn from each other as well as from the
experts conducting the research. All the same contracting and communication issues
discussed under contract R&D apply here as well.
The companies in R&D strategic partnerships are often competitors. Therefore the kind
of projects that are most conducive to this type of technology acquisition are precompetitive
research. These are usually applied research projects that are too risky and too expensive
for any one company to handle, but if certain results were achieved the industry as a
whole would benefit. As a result, the company must have either an internal R&D or a
contract R&D capability to translate the results of the applied research into technology
the company can use. Companies must be aware that the company's share of the R&D
strategic partnership costs are not all the costs. The costs of developing the findings
further and implementing them must also be considered.
247
Technology Management R&D strategic partnerships can be initiated by one company inviting others to join, by an
informal group of companies, by a formalized association of companies in an industry, or
by the R&D institution itself. The last model is the most common. The institution is
motivated by its need to have its work funded. Companies, who are generally too
competitive to consider inviting other companies to join with them, are willing to consider
a proposal presented by an independent organization. This is especially true of small
companies. R&D strategic partnerships are becoming relatively common with large
companies in electronics/computers, automobiles, oil, and mining, while they are still
very rare with small companies.
Option 10 - Licensing...
Licensing
Licensing existing technology is a popular and effective form of technology acquisition.
It enables companies to skip the technology development phase of technology acquisition
and move directly into implementation. Its major benefit is a significant reduction in time
to market relative to forms of technology acquisition that require development. It also
enables the acquiring company to share the financial risks of acquiring the technology
with the provider because the bulk of the payments are generally in the form of a royalty
- a percentage of sales of product made using the new technology.
It has the appearance of being low-risk to almost risk-free. If the acquiring company's
application is identical to the one for which the technology was developed it can be fairly
low risk. Technological risks are almost eliminated because the technology has been
proven to work in the application being considered. However, there are still implementation
risks to be addressed. The main potential for failure in implementation is resistance to
change by the company's employees. If the new technology is perceived to put their jobs
at risk, employees will strongly resist implementation resulting in the failure of proven
technology. Special attention must be made to communications ensuring the acquisition
process to ensure that employees will not kill the project. The providing company can
help. The licensing agreement should include training and communication support so that
the acquiring company can benefit from the developing company's experience.
When the new application is not identical the risks can be significant. These projects can
quickly begin to resemble internal R&D projects. If companies realize this and plan
accordingly the results can be very positive. Many companies, including small ones,
have licensed a technology that was either developed for another application or has not
been fully developed. They have added their own R&D and have been successful in the
market with a new and unique product. However, there are also many failures where a
company mistakenly thought it could license a technology and use it for a new application
with little effort.
Costs can be (and should be) lower for the receiving company because the providing
company (presumably) is making sufficient revenues from its use of the technology to
pay for the investment made in developing it. Therefore it is in a position to license at a
price that is lower than the cost of development. However, there are costs in addition to
the licensing fee that are not obvious at first. Additional internal development and
implementation costs have already been mentioned. Another factor to address is that
fact that if done poorly licensing can do little for the development of internal technical
strength. The developing company has significant technical capability and experience
with the technology that should also be transferred to the acquiring company. This can
add to the initial cost, but will result in a company that is much more prepared to deal
248 with customer service and future product development issues.
 Technology Absorption and
Option 11 Purchasing... Innovation

Purchasing
A common and effective external technology acquisition method is purchasing technology.
This is normally done in the form of buying a piece of production machinery with embedded
technology. This is generally the quickest form of technology transfer because the
technology is already packaged and ready to use. It is low risk because the equipment
has been proven to work technically and evidence can be acquired from other users to
back up the providing company's claims. In addition, the providing company can also
provide implementation support in the form of set-up and training. The costs will be
lower than developing the technology because the providing company is generally in the
business of providing the machines containing the technology to many users thereby
spreading the development costs over several customers.
Care must be taken to not overlook the costs of internal activities such as staff time
spent on training and the disruption of the present production that will happen during the
installation of the new equipment. The temptation will be to consider the price paid to the
provider to be the entire cost of the technology acquisition. It also must be understood
that the providing company is generally in the position of selling machinery to as many
users as possible which makes exclusivity highly unlikely. The acquiring company has
the same potential resistance problems discussed under Licensing. The implementation
project must be designed in a way that these risks are minimized. Technology acquisition
in this form also does little to build internal strength. This may not be an issue, as in the
case where the purchased production equipment is not the company's core technology.
They need only address maintenance and operation training which can be acquired from
the provider as part of the purchase.
Another form of purchasing technology is to pay for the know-how behind a technology
and the right to use it in the company's application. This is very similar to licensing,
except it is a one-time purchase rather than an ongoing relationship. It has all the same
risks and benefits of licensing a technology for a new application discussed in the Licensing
section. The major difference is in the areas of cash flow and risk. The purchasing
company generally pays for the technology in one or a very few payments. Licensing
normally has the bulk of the payments made in relation to the sales the acquiring company
makes using the technology. The payments in a purchasing situation are for an agreed
price and are not tied to any revenues the acquiring company receives with the technology.
The acquiring company is carrying more of the risk in hopes of greater returns in the
future because they do not have to be shared. As a result the price of technology
purchased in this fashion in generally lower.
Option 12 Joint Venture with Technology Provider...
Joint Venture with Technology Provider
Entering into a joint venture agreement with a technology provider is another form of
external acquisition that can be very effective. Typically this is a partnership between a
company with a technology and a company with market access. It can take the form of
the creation of a new company with each of the partners owning shares in the new
company in proportion to the value of their contribution to the new company. In this case,
production facilities are installed in the new company with the partners bringing technology
and market know-how along with capital investment into the new company. The distribution
and marketing of the product may use the system that the company with market access
has in place, or that company's know-how may be used to create a dedicated system for
the new company. 249
Technology Management Another version of this is very similar to licensing. The providing and acquiring companies
form a contractual agreement describing who provides what and how the revenues are
to be shared. The primary difference between this and licensing is the fact that the
technology provider has an expanded relationship with the acquiring company. They
make joint decisions about production and marketing even though the acquiring company
actually produces the product and provides it to the market. The advantage is that both
companies learn from each other. The disadvantage is that either company cannot make
decisions on its own, the partners have to agree.
Both forms of joint venture with a technology provider generally have the advantage of
low risk. The technology is proven and immediately-implementable technology (after
training and installation). The acquiring company will get exclusivity in a region. It will
have an ongoing relationship with the provider providing opportunity to learn from the
provider. There are some market risks. Even though the acquiring company will likely
have access to the market, the new product may not be accepted by the market. Joint
ventures typically have higher up-front costs than licensing, especially when a new
company is created. Both also have the constraint of the partners having to agree on
operational issues. This may be an advantage or a disadvantage depending on the situation.
Option 13 - Acquisition of a Company with the Technology...
Acquisition of a Company with the Technology
The final form of external technology acquisition to be discussed in this course is the
acquisition of a company that has the technology desired by the acquiring company. This
can happen when one company has a technological innovation that is impacting another
company's business. Rather than trying to duplicate or improve upon the first company's
innovation (which would take time and may not have the desired results), the second
company negotiates to purchase the entire company. This can result from a defensive
action as mentioned above or it can be a deliberate technology acquisition strategy. This
option has very little technical risk, and if the product is on the market and doing well, it
can also have low market risk.
Acquiring companies to get technology does have some areas of concern. If the acquired
technology is to be used in a different application, some internal R&D with its associated
risks and problems may be required. The acquired company may have other problems
such as an undisciplined work force or poor image with the public due to an unrelated
problem like an environmental spill. If the acquired and the acquiring companies have to
work together as one organization, there will be system integration issues to deal with.
There could be key members of the acquired company who resent the take-over, causing
them to leave and take key undocumented tacit knowledge with them.
The cost should be proportional to the value of the company's assets including the
technology. However, this is not always the case. The company's hard (physical)
assets may be of little value to the acquiring company which may increase the cost of
the acquisition above the value of the technology alone. On the other hand, the providing
company owners may be in a desperate financial situation, and willing to sell the entire
company for considerably less than its full market value. When negotiating such a
purchase, the acquiring company must have a full understanding of the value of the
things it wants. These would include the technology (including the impact of the reduced
time to market), and perhaps its market reputation and/or its production capabilities.
So long as the purchase price is less than the value of the desired components and this
plus the internal costs are affordable, technology acquisition via purchasing a company
is viable.
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 Technology Absorption and
9.5 CREATING NEW/IMPROVED TECHNOLOGIES Innovation

Today, more than ever, companies need to create new and improved laboratory and
manufacturing processes to deliver increased productivity and reduced costs and to
increase quality and introduce flexibility. These factors lead to ever increasing product
and process complexity which conflict with shrinking times to implement the solutions.
The result is a significant challenge to transform and deliver scaleable manual, semi- and
fully-automated solutions that take advantage of the best current and emerging
technologies. Therefore the organisation should supports its clients from laboratory
R&D through to operational manufacturing, identifying opportunities for improvement or
transformation through the appropriate fusion of science, engineering, automation and
process optimisation. The management should realise technology solutions that address
many productivity and quality issues, enabling new and improved processes that deliver
competitive advantage.

9.6 INNOVATIONS
Technological innovations play an important role in the future. The theory discusses
companies' growth by effectively leveraging technical innovations for two types of firms:
technical start-ups and large technology-intensive firms. It is argued that these two types
of companies are rapidly becoming more dependant on each other and that following the
precursor model of the biotechnological sector, firms will increasingly spin in, as well as
spin off innovation projects at various stages of maturity. The framework of a distributed
innovation system is presented, which involves a variety of actors. Firms indeed need to
organise accordingly and, for this, should learn from the practices of totally different
sectors, such as the entertainment industry; also, the mission of the Research and
Development (R&D) function will have to be redefined.
Innovation is a product of divergent and convergent thinking. The characteristic of
convergent thinking is that it is intellectual, digital, secondary, abstract, directed,
propositional, analytic, lineal, rational, sequential, and objective. In convergent thinking,
the information leads to one right answer or to a recognised best or conventional answer.
Divergent thinking in contrast, we think in different directions - searching or seeking
variety. According to Guilford, "Divergent thinking comes into play whenever there is
trial and error thinking"
Divergent thinking is essential to the novelty and design of an innovation, i.e., the first
stage in the process of innovation. Convergent thinking is fundamental to the second
stage, i.e., appropriateness and the implementation of the idea. During the first stage,
divergent thinking is predominant, but in the second stage the convergent thinking ability
has to be dominant. The result is a new product or process.
Innovations are a characteristic of the changes taking place in the business world today.
The rate of change has become so great that businesses feel their survival is threatened
if they do not do keep up with the changes. Innovations when they come from outside
the industry can cause the downfall of the entire industry. Innovations of this type, are
the most difficult to identify and to protect against.
The Swiss mechanical watch industry was nearly wiped out by the introduction of the
electronic watch. Established industries have seen this happen to them from time to
time. Manufacturers of typewriters did not see that their product would be replaced by
printers and word processors; manufacturers of radios must have been taken by shock
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Technology Management when transistors took over their markets; even early manufacturers of motorcars would
not have believed that their products would completely replace carriages and bullock
carts in the transportation market. Manufacturers of gas lights did not foresee the invention
of the light bulb by Edison. According to a study conducted by Prof. Utterback of MIT,
three quarters of industry changing innovations that he examined came from outside the
industry itself.
Radical innovations can make industries obsolete. .and those who risk investing in
these ideas, can reap disproportionate benefits if the innovation is successful.
Box 9.7: Halloid

In 1935, Chester Carlson was working in the Patent Office of Mallory Company. Using his
technical background, he began experimenting with new ways to create a copying process.
His basic idea was to project the image of the typed paper on a blank sheet of paper coated
with dry ink, to hold the ink at the typed spaces using static electricity and finally melting
the ink by baking the paper. Carlson succeeded in obtaining a crude image, thereby
converting his idea to practice. By 1942, he had obtained the patent for the process.

Like most new ideas, it was not commercially efficient, cost effective or usable. It required
development. Development costs money, takes time, and requires skilled resources. Carlson
went from company to company seeking support. He was turned down, again and again.
Battelle Memorial Institute, which had a range of advanced technical research capabilities,
agreed to work on the development in return for a share of the potential royalties.

In 1945, a small company named Halloid learnt of Carlson's patents. Joseph Wilson, the
president, was looking for new products. Halloid produced the first copiers, using Carlson's
patent and Battelle's developments. The rest is history. The company became Xerox, creating
a new industry in office copying products. Xerox grew, keeping a technological and marketing
dominance over the industry for over three decades. Carlson became a multimillionaire.
Others, who supported him, reaped their rewards.

Innovations made in one industry will be the nucleus for the growth of many other new
industries. Radical innovations can be threatening, but also provides new opportunities to
those who have the vision and are prepared for the challenge. The computer provided
opportunities to accelerate the growth of new industries including the sophisticated space
industry, formed the basis for creating the World Wide Web that made possible a number
of internet based businesses, etc.
It is fortunate for firms when they participate in the technology development process,
especially if the innovation is radical. How many companies missed out on the Xerox
patents, described in Box 9.7. Why did it take an R&D outfit like Battelle to see the
potential in the process? How was it that Halloid saw this as an opportunity?
9.6.1 Defining Innovation
Innovation can be a new invention, discovery, new ways of doing things, a new product,
new ways of servicing, new uses of existing products, etc. Myers and Marquis (1969)
(Successful industrial innovation: Study of factors underlying innovation in selected firms,
National Science Foundation, NCF 69-17, Washington) have defined innovation as:
"Innovation is not a single action but a total process of interrelated subprocesses. It is not
just the conception of a new idea, nor the invention of a new device, nor the development
of a new market. The process is all these things acting in an integrated fashion."

252
The senior Vice President for research and development at 3M, defined innovation as: Technology Absorption and
Innovation
1. Creativity: the thinking of novel and appropriate ideas.
2. Innovation: the successful implementation of those ideas within an organization.
Innovation can be of many types. It can be Product Innovation (development of a new
product), Process Innovation (new manufacturing process), Organizational Innovation
(new accounting procedure, new type of structure), Management Innovation (as Six
Sigma, TQM etc.), Production Innovation (new inventory management techniques, JIT),
Marketing Innovation (a new sales approach, new positioning strategy, innovation about
new advertisement spots), Service Innovation (Internet Banking).
The lexicon defines innovation as the act of introducing something new or unusual. In
the commercial sense it is better understood in the words of Peter F. Drucker. According
to him, innovation is "the task of endowing human and material resources with new and
greater wealth-producing capacity".
In the context of a developing country like India, this means a great deal. India has huge
resources and large human capital. Yet the capacities to transform these resources into
wealth- creating assets are often lacking. There is also a lack of innovative efforts to
improve capital output ratios which are far below the world standards.
List of Some Recent Inventions
Inventions in 2002
l Birth control patch invented by Ortho McNeil Pharmaceutical, 2002.
l Foveon Camera Chip invented by Richard Merrill.
l Date Rape Drug Spotter invented by Francisco Guerra.
l Solar Tower invented by Jorg Schlaich.
l Virtual keyboard invented by Canesta and VKB.
l ICOPOD invented by Sanford Ponder.
Inventions in 2004
l Adidas 1: The thinking shoes with a built-in microprocessor that decides how soft
or firm support the wearer needs. Chosen by Popular Science magazine as the
best recreation invention of 2004.
l Translucent Concrete: Developed by Hungarian architect Aron Losonczi and
called LitraCon, it is based on a matrix of parallel optical glass fibres embedded
into concrete that can transmit light and colour from the outside.
l Kaon or Flower Sound: These plants that play music. Invented by Japan-based
Let's Corporation. Flower bouquets will act as loudspeakers when placed in a
special vase that has electronics embedded in the base.
l Intel Express Chipsets: Grantsdale and Alderwood are the code names of Intel's
newest chips that will provide superior and inexpensive built-in sound and video
capacities for PCs, including the ability to do high definition video editing without
additional computer cards.
253
Technology Management l SonoPrep: Invented by bioengineer Robert Langer, it is a device that will deliver
medication by sound waves rather than injection. According to the Sontra Medical
Corporation, SonoPrep's manufacturer: The small, battery-powered device applies
low-frequency ultrasonic energy to the skin for 15 seconds. The ultrasound
temporarily rearranges lipids in the skin, opening channels that let fluids be delivered
or extracted. After about 24 hours, the skin returns to normal.
9.6.2 Classification of Innovation
1. Related to Product/Technology: An innovation could be technology push or
demand pull or some combination of both. That is, did the idea originate with the
firm's R&D activities or did it emerge in what might be called the marketing activities
of the firm through the identification of the need or the market opportunity.
These innovations are generally related to the product itself. The Japanese are
leaders of technology and remain confident about the future because Japan has a
strong industrial base and a huge lead in R&D. The speed of innovation in Japan is
much faster than in any other country.
2. Related to Organization: Apart from the product or technology-related innovations,
there is one more important category of innovation which is more relevant to us
today. They are innovations which are initiated by a need identified by the
management within the organisation but where this need is not the customer's
need. These innovations are related not to the product itself but the process or
system, which makes the product available to the customer.
The organizations that do not accept new technologies and do not adapt themselves
to accept new technologies will fall behind.
3. Innovation Diffusion through International Alliances: Innovation diffusion means
the adoption and implementation of innovations. It is affected by the results in
changes within the organisation. Alliances between international companies over
the past few years are accelerating the innovation diffusion process in India. The
joining of foreign firms is creating stronger and more competitive companies through
the interaction of technical people, managers, manufacturing and research techniques.
An example is the automotive industry wherein global players are now entering
into license agreements, joint ventures, etc., with local Indian players. As a result
of these international alliances, the diffusion in international technologies (robotics),
management style (Total Quality Management-TQM), and inventory methods (Just
in Time-JIT) are taking place.
As a result of the opening up of the Indian economy, the country's industry has
gained from innovations and regained its competitiveness.
4. Related to Work Culture: There is no doubt that companies competing in today's
economic environment are forced to deal with changes almost on a daily basis.
Culture is a key ingredient for change that is inevitable when dealing with the
implementation and development of innovation.
How a company handles changes due to the adoption, implementation and
development of new products, ideas and techniques, determines how well that firm
will perform over time. Many traditional Indian corporate cultures are barriers to
increased speed. Speed is important for innovation because of the need to retain
existing customers, competitive market pressures, and changing consumer needs.
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9.6.3 Organizational Characteristics that Facilitate the Innovative/ Technology Absorption and
Innovation
Technological Process
To enhance innovation, an organization requires the following characteristics:
Growth Orientation: The companies whose objective is growth are innovation oriented.
Vigilance: These organizations always keep an eye on happenings in the external
environment.
Commitment to Technology: Innovative organizations are committed to new technology.
They exhibit patience in permitting ideas to germinate and develop over time. They
invest in promising ideas.
Acceptance: Every innovation is not a hit. Innovative firms have to be ready to take
that risk.
Cross Functional Co-operation: Inter -departmental conflict is a well-documented barrier
to innovation. A close functional co-operation is required between various department as
between R&D, production, and marketing for continuous innovation in the organization.
Receptivity: The capability of the organization to be aware of, identify and take effective
advantage of externally developed technology is the key to effective innovative strategy.
Adaptability: The organization must be adaptive to innovation, which may require changes
in the management styles, work culture and structure. If an organization is not adaptive,
the innovation may prove to be futile.
Diverse Range of Skills: Organizations require a diverse range of specialized skills and
knowledge in the form of experts.
Futuristic: Innovative organizations are future-oriented. They develop the strategies
and work on them for the distant future. They not only work on projects of current
importance but invest significantly on basic research for future-oriented innovations.
In a lecture given to the Royal Society in 1992, former chairman of Sony, Akio Morita,
suggested that unlike engineers, scientists are held high in esteem as science provides us
information which is previously unknown. Technology is an outgrowth of science that
fuels the industrial engine. And it is engineers and not scientists who make technology
happen.
In Japan, he argued, you will notice that almost every major manufacturer is run by an
engineer or technologist. However, in the UK , some manufacturing companies are run
by CEOs who do not even understand the technology that goes into their own products.
Indeed, many UK firms are headed by Chartered Accountants. With the greatest respect
to accountants, their central concern are statistics and figures of past performance.
How can an accountant reach out and grab the future if he or she is always looking at
the last quarter's results (Morita 1992,S does not equal T and T does not equal I,
Royal Society , February)
9.6.4 Competitive Advantage and Technology (Role/Importance of
Technology)
It is through the process of innovation/technology that knowledge is converted into wealth.
Further, technology is an important factor for the competitiveness of both the service and
manufacturing sectors and hence the urgent need to put in place a system of innovation.
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Technology Management Such a system would involve networking of firms, knowledge-producing institutions, bridging
institutions and customers/users in a value addition-creating production chain.
With such a consortium, the technology system would tap into the growing stock of
global knowledge, assimilate and adapt it to local needs, and finally create new knowledge
and technology. India and its organizations must evolve such systems to improve their
competitiveness in a global marketplace. Competitiveness emerges from the strength of
knowledge power, which is powered by technology that in turn is powered by capital.
In the coming years, competitiveness would be derived from the ability to recognise and
integrate all forms of knowledge leading to innovation in every area of human endeavour.
While talking about competitiveness and technology, the necessity of building innovation
systems is important.
Technology is reshaping the basics of business. Customer service, operations, product
and marketing strategies and distribution are heavily, or sometime even entirely, dependent
on technology. The technology that support these functions can be found on the desk, on
the shop floor, in the store, even brief cases.
Sustainable competitive advantage is an advantage that allows uninterrupted maintenance
and improvement of your enterprise's competitive position in the market. It is an advantage
that enables your business to survive against its competition over a long period of time.
Owning your competitive advantage will allow you to build upon it continuously, be more
flexible, and eliminate speed breakers.
"If I were to speak about competencies and assets of an organization that are
likely to remain valuable, I would restrict myself to one word 'Innovation'."
Ashwin Dani
Vice Chairman, Asian Paints (India) Limited)
Hypercompetition is a key feature of a the new economy. Not only is there more
competition, there is also tougher and smarter competition. "Hypercompetition" is a state
in which the rate of change in the competitive rules of the game are in such a state of
flux that only the most adaptive, fleet, and nimble organizations will survive. New customers
want it quicker and cheaper, and they want it their way. The fundamental quantitative
and qualitative shift in competition requires continuous innovations and improvement.
9.6.5 Technology: The Key to Competitiveness
The cold truth today is that a company can hold its competitive edge and stay ahead of
change only through innovation. Innovative companies are those that keep their collective
eyes and ears open to change and opportunity, and respond with ideas and actions that
keep them growing and profitable. Companies that compete through innovation know
that new (or borrowed) ideas apply not only to products, but also to quality, productivity,
service, financial discipline, employee attitudes and renewal. All are critical elements in
a company's competitive ability.
In recent years, the ability of firms to innovate is creating significant differences between
the best and the rest. A study of over 200 companies entitled "Winning New Products"
conducted by the Kellogg Graduate School of Management shows that successful
innovative firms were more likely to generate growth rates of 20% or more, compared
with the less successful ones.
There are mainly two options for achieving competitive advantage and forging ahead in
256
the race. Either to achieve product/service differentiation or cost differentiation, and if
possible, both. Each success in such differentiation is again short - lived. Hence innovation Technology Absorption and
Innovation
is the call of the day to remain ahead with the differentiation.
Technology provides an edge over competitors on all the Four Ps of marketing:- Product,
Price, Place, Promotion.
Product: According to Philip Kotler, success doesn't lie in merely satisfying the customer
but in delighting him/her. If an organization doesn't delight the customer then someone
else will do so, and the d organization will lose the customer. Even under the best of
circumstances, staying competitive today is more difficult than ever before because the
conditions that determine competitive advantages change at an unparalleled speed.
Today's hot product may be tomorrow's flop; technological advances and increased
competition today rack the secure, stable market. Investment in technology can deliver
new and augmented products every time. Bajaj is classic example of this as it recently
launched new models at short intervals where each new model cannibalized its old model
because if they didn't do it, someone else would have.
The result was phenomenal as the companys sales surged rapidly. Successes such as LG,
Samsung, Hyundai and others have invested in a reasonable amount of product innovation.

P lace

P ro m otion Techn o log y P rice

P ro du ct

Figure 9.1: Technology and Four Ps Marketing

Price: Price is a decisive factor in today's marketing warfare. We are living in an era of
value maximisation. Value can be maximized by making a value added product at a
competitive price. This can be done only through technology. Technology not only helps
in producing augmented products but also reduces manufacturing costs.
Today, every firm in India is investing in R&D to reduce its manufacturing costs. Prof.
C.K. Prahlad has said that in India, wealth lies at below the pyramid, i.e., a lower income
people. This is the reason that HLL did R&D for a whole year and developed a new
technology and launched an ice cream of international quality at Rs. 5. Extensive R&D
is also going on among hardware companies in India to launch a computer at less than
Rs 10,000 in the country. Today national wide companies provide shampoos, eatables,
etc. at Re. 1. All this is possible because of technology. Thus it is because of technology
that even the lower income groups in India can enjoy a product of international quality.
Promotion: Technology has today enabled all national, international and regional producers
to reach out to consumers in the remotest of areas via the electronic media and other
forms of mass communication. It is because of technology that today a wide variety of
promotional media and options are available to organizations. 257
Technology Management If companies today wish to launch a product at the regional level, they don't have to
spend at the national level. In the last fifteen years, we have seen a great surge in
several regional brands (Ghari, Priyagold, Ujala, Kavin Care, etc.) graduating to become
national brands and giving a tough fight to established national brands. All this is possible
because of the new promotional media, which they can afford.
Place: "Jo dikhta hai woh bikta hai" is a popular and true maxim of sales and distribution
management. HLL is the emperor of the FMCG market only because of its distribution
network. Coca Cola acquired Parle not because of its brands like Thums Up but because
of its distribution network. Distribution network is a critical success factor for all products.
Technology provides an edge in this field too. Modern logistics management is totally
dependent on technology. Whether it is Cold Chain Management, Fleet Management, or
Scheduling, all these are dependent on technology. It is because of technology that
McDonald's provides the same quality of peanut butter and bread all over India, and
HLL is able to provide the same quality of ice cream all over India.
Apart from helping all the Ps of the marketing mix, technology also provides an edge in
all the three critical success factors common to almost all the industries. That is Value
Addition, Differentiation, and Cost. We have seen that technology helps in differentiation
and value addition by providing not only new products but value added products.

Value
Addition

Technology

Cost
Differentiation Reduction

Figure 9.2: Technology Helps in Adding Value

Technology helps in adding value by providing various services, increasing their usability,
adding accessories, and making available various models, that too in different shapes
and colours. Today, white goods are no more 'white' because of technology.
"Thus technology adds value, makes a different statement and reduces my cost," What
else do I require as a manufacturer or service provider ?
Box 9.8: Technology Working at Indian Railways

CMCs (Computer Maintenance Corporation, erstwhile PSU now acquired by TATA) online
passenger reservation system, designed to meet the specific requirements of the Indian
Railways, handles almost 100 million passengers a year in over 40 Indian cities. Imagine if
this was done without automation not a very appetising thought The system prints
tickets and reservation charts both in English and Hindi. March 1996 saw the celebration of
a decade of IMPRESS being in operation in the Northern Region. The impact of this is
manifold, but just to take one example today you can book a journey from Delhi to Simla
from Mumbai. This is a system that directly touches almost every traveller in India.

Technology thus provides competitive edge in all fields in all facets of business--Human Resource
258 Management, Sales Management, Manufacturing, Finance, Marketing, Training, etc.
 Box 9.9: Technology and Innovation at Asian Paints Technology Absorption and
Innovation
It would be appropriate to undertake a study of Asian Paints in this chapter, for its use of
technology through the years to gain a competitive edge in the marketplace. Today, the
company has formulated an entire range of decorative coatings through homegrown
technology. It has always given emphasis to R&D and continuously made investments in
this development of Information Technology. It has used IT as a tool to bring efficiencies
and streamline operations. The use of IT and R&D will continue to be important in the
future and Asian Paints will not hesitate in making investments in these areas to gain
advantages for the organization.

Continuous reconfiguration of activities in the value chain is a key task of all companies
aiming to remain competitive and to achieve the highest value-cost leverages. Given this
requirement, what were the key initiatives taken by Asian Paints during the last 5 years?

In last five years, reconfiguration of value chain activities to increase competitiveness has
been one of the major focus areas for Asian Paints. In fact, Asian Paints has transformed as
an organization. The sales and profit figures will reflect the strong financials of the company.
But most have important have been initiatives undertaken in all areas of operations to
increase efficiencies. Some of the key initiatives undertaken are:

l Initiatives in manufacturing to reduce losses at factory

l Sourcing efficiencies

l Introduction of new technology to boost efficiencies and increase productivity

l Implementation of a new supply chain solution

l Implementation of an ERP solution

Besides the above, it has focused on continuously improving environment management

standards at our plants. Today, all Asian Paints manufacturing facilities are accredited with
the ISO 14001 certification for environment management standards. These systems have
enabled the company to reduce effluence from the manufacturing facilities. The introduction
of the new supply chain solution has transformed functions like management of inventory
and forecasting demand. A new solution that helps centralise demand forecasting has
brought significant benefits for the company through reduction of working capital. It has
changed the manner of functioning of the supply chain division.
Source: Ashwin Dani,Vice Chairman, (Adapted from website of General Management Review) Asian Paints
(India) Limited.

9.6.6 Strategic Innovation

Strategic innovation is the process of creating new industries, opening new markets, and
inventing new categories. It is the business of envisioning your future and innovating
your way there. R&D has to play a critical role in this. How committed is your organization
to the practice of strategic innovation? Some important things to look for are: industry
foresight, customer insight, an enabling process, future-driven work culture, growth-
motivated senior management, and corporate chameleons. "Strategic Innovation" as a
leadership discipline is an approach to strengthen creativity and innovation concerning
future business opportunities.
Innovate or Perish
To survive the emerging hyper-competition across categories, FMCG companies need
to make innovation an integral element of their growth plans.

259
Technology Management Producing soap more cost-effectively, for instance, may no longer be enough. It is more
important to produce soap with a novel usage proposition - just as, say, single-serve
sachets revolutionised the shampoo market in the early 1990s. Innovation can no longer
be considered an exception; it needs to become an integral driver of growth. In fact,
innovation is increasingly becoming a yardstick by which corporate performance is being
measured. For instance, a Fortune magazine study put "degree of innovativeness of the
company" as the strongest predictor of investment value. Hard data corroborates this.
Take the case of Reckitt Benckiser, where close to 40 % of the revenues are generated
from products introduced during the past three years.
Since the formation of the merged entity in 1999, Reckitt Benckiser has more than
doubled its net profit, and its operating margin has soared from just shy of 12 % in 1999,
to over 19 % in 2004. In fact, it is one of a mere handful of companies that meet
Accenture's definition of a high performance business globally. Most CEOs recognise
the strategic potential of innovation, and it remains a key strategy to lever competitive
advantage. It is no surprise that in an Accenture study, 83 % of senior executives surveyed
said innovation was vital to the future success of their company.
In brief , in order to work, innovation must be a collaborative initiative in which the top
management takes conspicuous ownership. According to Bart , "At Reckitt Benckiser,
innovative ideas are generated from consumers, from suppliers, from creative shops. In
fact, everybody in this organisation is there to generate ideas and to bring them to the
table. The more ideas I have, the better my chances of finding a winner."
Another Accenture study on entrepreneurship showed that the common barriers to
innovation are, in order of importance, aversion to risk and failure, lack of innate
entrepreneurial skills, slow decision-making, lack of resources and little readiness to
change.
For successful FMCG companies, innovation becomes a holistic issue focused on building
the company-wide capability to develop a constant stream of innovative products and
bringing them to the market faster.
One way of achieving this is to create a structured process involving cross-functional
teams with distinct phases built on the themes of strategy, execution and capability-
building. The first phase should typically be planned around a number of key questions
such as:
l Which consumers do we want to serve and what do they value and need?
l What is the current portfolio and does it optimally align with overall strategy and
consumer needs?
l Where do innovation opportunities exist that meet consumer needs and are in line
with the portfolio strategy?
l Which innovation stream is required to meet shareholder value-creation targets?
Next, the target innovation stream and the required capabilities should be viewed in
conjunction to define a two-pronged execution plan. In this, a distinction must be made
between the specific capabilities needed to realise particular innovations and the generic
capabilities to become inherently more innovative.
In recent years, the ability of firms to innovate is creating significant differences between
the best and the rest. A study of over 200 companies entitled "Winning New Products"
260 conducted by the Kellogg Graduate School of Management shows that successful
innovation firms were more likely to generate growth rates of 20 % or more compared Technology Absorption and
Innovation
with less successful ones.
(Ashish Nanda, Business Standard, Oct. 26 2005)
Every organisation has at least one technology for converting its resources into products
or services. Maruti Udyog Ltd, for instance, predominantly employs an assembly line
process to manufacture cars and management institutes use a number of instruction
technologies (lectures, cases, group discussions, programmed learning, experiential excises
etc.) to empower students with latest thinking in various disciplines. The important point
is to see how organisations tune their resources in line with changes in the environment,
produce eco-friendly and want-satisfying products and survive the onslaughts from
competitors. New technologies have changed the rules of the game completely, especially
during the last quarter-century, throwing well-established, sound businesses out of gear.
In fact as Kotler remarked, Every new technology is a force for creative destruction.
Transistors hurt the vacuum tube industry, xerography hurts the carbon-paper business,
autos hurt the rail roads, and television hurts the newspapers. The face of technology
can produce problems for organisations, even those on the cutting edge of technology.
Consider the dilemmas faced by IBM in late 80s. Technological advancements have so
quickly and substantially increased the power and capacity of personal computers that
desktop and laptop PCs have fast replaced large, mainframe computers in many
companies. IBMs mainframe sales accounted for 60 per cent of its profits and not
surprisingly, it took a painfully long time for IBM to recover from the shocks injected by
such rapid advances in technology.
Technology & Innovation Management will establish the direction of the third millennium.
To minimize possible undesired ecological effects along with manufacturing and utilization
of technology and products, "Sustainable Development" is well suited as a vision for
further development.
9.6.7 Nature of Innovations
As innovations form such an important part of the technological environment of the
business organization, the nature of innovations is discussed in this section.
Innovations are Self-Propagating: Innovations give rise to other innovations, creating
the nucleus for the growth of many new industries, sometimes the new industries are
related to the original innovation. Developments are taking place that combine technologies
and provide synergy to the original innovation and create a new emerging industry. For
example, information technology, based on the synergy created by other innovations
such as optical discs and fiber optics, has emerged with the potential to improve any
activity that involves storing or retrieving, processing, or communicating information to
either man or machine. Some estimates suggest that up to 50 percent of manufacturing
and some 80 percent of some services like banking involve information activities. Here,
the potential application in process renewal is enormous. The information-processing
aspects of all work can be reshaped through it. This synergy of innovations has created
a new business process outsourcing industry.
They Proliferate: And, sometimes the new innovation is not necessarily related to the
original innovation. The computer made possible a sophisticated space effort, created
the Internet, made possible computer aided design, computer aided manufacturing, etc.
The consumer durable industry has been transformed by the microprocessor industry. It
has also changed the way consumers use many of their products. Pagers, mobile
telephones, automobiles, televisions, digital cameras, kitchen appliances, video games,
and toys, etc., are being fitted with special-purpose processors, controllers, and digital 261
Technology Management signal processors. These are either included or embedded in these consumer devices.
The list is endless.
Each new innovation permits the use of existing knowledge in new permutations and
combinations. As the number of innovations increases arithmetically, the number of
combinations rises exponentially. This also results in new models, new designs, better
packaging, or improved service. This is threatening the fortitude of some companies that
are not willing or hesitate to change with changes in the consumer's and market
expectations. Meeting this type of challenge requires new approaches to planning.
Sometimes, the challenge of change is of survival itself.
Create New Business Opportunities: Technological change is the basis for creation of
new business opportunities. It creates new products and services - hence new business
opportunities. It also contributes to the competitive edge of the firm, because a firm with
inferior technology cannot compete at the same price level with a firm superior in
technology. Armed with ever more sophisticated research technologies, more creative
work environments, and a continuing drive to harness nature everywhere, technological
changes have become more rampant. There is a quantum jump both in the qualitative
and quantitative measures of technological change.
Create Higher Technical Competence: The Stanford Research Institute, in a publication
on the life of various products introduced in the twentieth century, showed that in 1920 the
period between introduction and peak production of the products investigated was 34 years.
For the products introduced between 1939 and1959, to reach the peak production it took
only 8 years. This process of reduction in the technological life cycles of products has
become more acute. With firms having to introduce products at shorter intervals, the firm
requires higher levels of 'technological competence' and the ability to introduce increased
number of new products. This has transformed the way some businesses operate and
created a new form of competition based on technological and innovative capabilities.

9.7 INNOVATION AND TECHNOLOGICAL CHANGE

Innovation and technology are the drivers for technological change. However, there are
different types of technological changes. Each has its own impact on the organization.
For example, some changes are internally generated and involve innovations in process,
systems and operations. These can often be anticipated and even planned. It is perhaps
not difficult to channel these developments to support the firm.
Other technological changes come from outside. Some of these external technological
changes can be predicted and we see them coming. Some are unexpected. These are
two-edged weapons, as they can provide opportunities for sustained growth and profitability
but they also can be threats to the survival of the firm.
In 1975, Xerox dominated the world photocopier market with 93 percent of the market
share. It guarded its technology with over 500 patents. Canon was a small camera
company from Japan that entered into this business around 1970. It did not have the
process technology to by-pass Xerox's patents. Yet over the next three decades, Canon
rewrote the rule book of how copiers were to be produced and sold. Canon's copiers are
a business of around Rs. 300,000 crore in annual revenues and it sells more copiers than
Xerox does. Canon succeeded, not by copying Xerox, but because it saw the market
differently from Xerox. Xerox thought only big organizations required photocopiers, but
Canon believed that individuals and small businesses would find the product useful if
262
only they could afford it. The technology appropriate for this product would therefore be Technology Absorption and
Innovation
different from Xerox's patent protected technologies.
New businesses are generally based either on a perceived market opportunity or on the
basis of technology. Canon built for itself a new business from a perceived market
opportunity, while Xerox had built a new product on the basis of technology. Both these
companies brought about major technological changes.
Technological Change is the development of new artifacts. The artifact develops through
invention, innovation and re-innovation. Innovation is the transfer of ideas into artefacts.
Innovation, therefore, is a term of primary interest to the organization. Innovation has
been defined in many different ways. A definition is given below:
"The process of innovation embraces that sequence of activities by which knowledge is
translated into a physical reality and becomes used on a scale having substantial societal
impact. This includes more than the act of invention; it includes initiation of the idea,
acquisition of necessary knowledge, its transformation into usable hardware or procedure,
its introduction into society, and its diffusion and adoption."
The distinction between 'invention' and 'innovation' is an important one. 'Innovation' starts
where 'invention' stops. An invention is the practical and material embodiment of a concept
or idea. It produces an artifact form that is judged to be significantly original by at least
the inventor designer, but more acceptably by the relevant community. Commercial
exploitation of a concept or invention is an innovation.
The innovation is combined into hardware modules and systems. These are developed,
and then applied, through procedures, methods, techniques and skills. Finally, both
development and use of the innovation become subject to governing systems - rules,
laws and implementing institutions - a set of soft artifacts. This combination of knowledge
and systems constitutes 'technological change'. This technological change provides a
solution, but it also generates a new challenge that in turn results in evolving new solutions.
One artifact gives rise to many others.
For example, the vacuum tube was an innovation that was designed for telephony. The
early tube contained 3 components, a cathode, a plate and a grid. Subsequent developments
resulted in new innovations that included improved means of creating vacuums, and
increase in the number of grids (up to 6 grids were added to the vacuum tube). These
innovations added to the volume, range, and fidelity of amplification. Subsequent
incremental innovations improved and modified the vacuum tube and it became a part of
radio communications, television communication systems, and computer systems, etc.
Finally, the vacuum tube was overtaken by the transistor.
Technological Change can come from within the organization or it can be acquired from
sources outside the firm. The former is called, Natural Technology development Process,
where the organization is involved in technology development projects. Acquired
Technology, on the other hand, generally deals with already developed technology, that
has been developed outside the organization and whose rights have been transferred to
the organization for some consideration. There is a discussion on this aspect of
technological change in a subsequent chapter.
9.7.1 Defining Technological Change
Unlike the case of 'technology,' defining 'technological change' is more difficult. According
to one school of thought, Technological Change is:
263
Technology Management "A process by which the technology pool is continuously updated and results in:
l A new or better product or process,
l A better production system or technique, and
l Knowledge of whatever sort about such techniques."
Though this definition is consistent with what we understand of Technological Change,
this definition is not acceptable to economists. For them the definition should result in a
quantifiable set. The variety in the range of innovations covered under the umbrella of
Technological Change, make it a difficult quantity to measure. It can be a machine to
replace hand cutting of metal; or it can be a simple sociological technique as reorganization
of work force for more effective production; or a mathematical formula such as an
Algorithm. How do we combine all these different activities under one generic description
and find measurement criteria to provide it a definition?
Based on the limitations of the conventional definition, an acceptable redefinition of the
term 'technological change' was attempted. Finally, a definition that has been found
acceptable is:
"Technological change is a change in the 'production function' ."
'Technological Change', defined this way, can be measured as the year-by-year change
in the output per man-hour of labor, i.e., Partial Productivity Index. The Partial Productivity
Index is measured by dividing the market value of goods and services produced during
the year (economy as a whole or a particular industry) by the number of man-hours
taken to produce them.
This is not the perfect definition. The limitation of this definition is that 'productivity'
defined in this manner does not identify whether this is due to new machinery or more
skilled labor force. Nonetheless, this definition is consistent with economic theory and is
acceptable to economists.
1. Convergent change: 'Technological Change' can be convergent. Convergent Change
is a process of incremental innovation and improvement that optimizes the ability of the
organization to succeed in the existing environment. Companies learn to work faster,
more efficiently and produce new products more regularly in order to survive. In this
type of change, there is a continuity of the product and the framework of the organization.
New products and models are introduced with each product or model incorporating
changes based on incremental innovations. Though the products are of the same genre;
the changes make the products cheaper, or more efficient, or environmentally more
friendly or better designed to the consumer's taste. The final objective is to provide
better value to the customer, without a radical change in the offering.
For example, convergent changes are primarily responsible for reduction in the time
required for new model developments in the automobile industry. The time is being cut
further and further. In India it was ten to twelve years, in Western firms in the 1980s it
was five to six years, while in Japan it was 4 years. Now the average time for most
manufacturers is around 24 months. Nissan is pushing for a 14-month cycle on their
newest models. This reflects not only on the changes that are taking place but also the
dramatic increase in the rate at which changes are taking place.
2. Divergent change: Divergent change involves changes where the framework of the
organization undergoes discontinuities. Whether it is in response to events over which
264
the corporation has no control, like deregulation, major shift in economic policies,
nationalization or events related to radical changes in technology like product life cycle Technology Absorption and
Innovation
shifts, new process technologies, radical innovations, etc., these changes involve
organizational re-formation or transformation.
The development of inexpensive and reliable integrated circuits is an example of how
innovations can revolution an industry. Integrated circuits were developed by the
electronics industry. This industry was traditionally distinct from the watch industry as
watches were designed with mechanical mechanisms and had reached a high level of
sophistication, reliability and accuracy using mechanical systems. There was little reason
for the industry to feel threatened.
Box 9.10: The Electronic Watch

The new electronic watches were powered by small batteries that functioned for about a
year without replacement. The batteries stimulated the balance wheel oscillations of an
otherwise mechanical clock, or were used to drive the oscillations of a small tuning fork or,
most commonly, a quartz crystal. The watches had no moving parts and were sturdy and
economical. The Japanese watch industry flourished and so did the watch industry in the
other countries that adopted the technology while the Swiss lost their stranglehold on the
market. These newly designed watches with integrated circuits were a new genre of product
that replaced the market of traditional mechanical watches, and created a discontinuity in
the operations of the Swiss watch industry.

The Japanese industry studied the developments and potential of integrated circuits and
saw an opportunity in using this technology for watches. They believed that the new
technology could be developed into a cheap and reliable substitute to the mechanical
system in traditional watches. As a result, they successfully developed technology for
watches using inexpensive integrated circuits.
In the case of the Swiss Watch Industry, that the threat came from outside the industry,
explains why this situation occurred. It came from the electronics industry. The Swiss
watch industry was a forward-looking industry, with high innovative capabilities. The
situation could have been avoided had they conducted an intelligent study on the
development of the semiconductor industry, in the early 1960s, as was done by the
Japanese. The study would have predicted the high probability that within ten to twenty
years time, integrated circuit technology would provide a cheaper, more reliable, and
more accurate replacement for the traditional mechanical watch. Had the Swiss watch
industry studied the future in a systematic way, it would also have anticipated this possibility
and taken appropriate measures.
9.7.2 Characteristics of Technological Change
The importance of technological change as an engine for economic growth has been
substantiated by a number of recent empirical studies that show more than half the
increase in national output in major developed countries stems from technology.
Economists now accept that technological change has been the engine behind the
phenomenal growth of industry in the twentieth century. A number of other studies confirm
the importance of technological change as a source of growth, although the quantitative
estimates sometimes differ. The fact that technological change has an extremely high
magnitude of contribution in the growth in output has to be accepted.
The growth ascribable to increase in the output of capital per man-hour and technological
change, were calculated by Prof. Solow (1957) in his classic article on aggregate
production function and technological change. After testing the neutrality of technological
change, for the period of 1909 - 49 (forty years) in the United States of America, The
265
total annual growth rate in output of 1.8 percent during this period and the contribution of
Technology Management technological change in this figure is about 1.5 percent a year. He attributes about 10 -
15 percent of the growth to increased capital per man-hour and 85 - 90 percent to
technological change. A phenomenal contribution!
Why this predominant role of technological change? Some believe that the role of
Technological Change in dictating economic activities is mainly due to the increasing
rate of growth in scientific and technical knowledge. 'Technological Change' is a function
of increased scientific and technical knowledge. The number of young people completing
secondary or high-school education has increased dramatically; between a quarter and a
half of them go on for higher education. The result has been an exponential growth of
knowledge.
The increased scientific and technical knowledge results in the emergence of a range of
new products; continuing and radical changes of technological processes and products;
increasing investments in Research & Development; and an enhancement in the
technology life cycle of products. In a market based economy this produces economic
development and increases the buying power of the consumer, which in turn results in
further growth in scientific and technical knowledge. The implications of these changes
are discussed in the paragraphs that follow.
1. It Expands the Knowledge Industry: Today's society has been marked by a great
expansion in education; the population has become better educated. Due to this, professional
and scientific knowledge has become the most marketable commodity. This has given a
great fillip to the printing, paper and allied industries. The US Government was producing
100,000 Reports, 450,000 Books, Articles and Papers and Scientific and Technical literature
amounting to 60 million pages in 1970. According to projections, this figure of scientific and
technical publications published by the U.S. Government has already quadrupled to more
than 240 million pages per annum in 2003, in a period of just over thirty years.
2. It Increases Requirements of Technical Manpower: New industries, starting with
chemicals, pharmaceuticals, aeronautical, space, and nuclear science, have been created
by developments in pure science and depend largely on theoretical research. Theoretical
knowledge in the social sciences also is widely applied, as in complex models of
technological and economic forecasting. This has led to the greatest deployment of
technical manpower, around the world. Estimates for the USA suggest that there were
over one million scientists and engineers at work on projects, with a total value of $ 100
billion per year in 1990. This has been growing since. Such a deployment of technical
manpower has never happened before on this kind of scale. As the growth of knowledge
is exponential, many nations will soon run out of their ability to produce and train manpower
in sufficient quantities to meet with the requirements. Firms will have to headhunt
internationally to meet their requirements.
3. It is Fast Paced: Even large firms cannot keep abreast of all developments in their
fields of interest as a result of the exponential growth of knowledge. The knowledge that
they miss sometimes can be expensive. More so because the basic characteristic of
knowledge is that it cannot be confined. So in case, they miss a development, others will
come forward to take it up. IBM, a giant firm that laid the foundations of the Information
Technology industry, did not keep abreast with developments in networking technologies
and moved slowly to counter threat. Others picked it up and IBM nearly lost the business
in the process.
4. It Increases Investment in R&D: Another consequence of the growth of innovations
is the increasing investment in Research & Development. Competitors are using R&D
266 to develop technologies that compete with each other. For example, many Japanese
companies including Matsushita and NEC, are promoting an analogue system, the HI- Technology Absorption and
Innovation
vision system in high definition television while various US companies are testing digital
systems. Depending on which system will prevail, the winners will take the loot, while
the losers will be left with nothing. Such developments have raised the investment and
stakes of R&D. Figures from Japan and Sweden suggest that money spent on R&D is
many times that spent on fixed capital. Even the largest firms are finding it difficult to
keep up with developments, as R&D is becoming competitive.
5. It New Approaches to R&D: This has brought in new approaches towards R&D.
Co-operation between former competitors has emerged as a new concept changing the
face of commercial competition. There is a growing trend towards shared approaches to
development of technology and a shift towards coping to learn how to effectively ensure
absorption of technologies developed outside the firm.
6. It Reduces Reaction Time: Technology is undergoing change so fast that it no longer
is something that one can sit back and decide upon at leisure. By the time the company
realizes that its technology strategy is obsolete, it may be too late and may have weakened
its customer base. Fierce competition, emanating from technological change, has drastically
reduced the reaction time for countering competitor action. In the face of this type of
competition, the companies have to take unusual risks of product and technology
development, etc., putting once secure market positions in jeopardy.
Enterprises, often, do not know where their competition will come from. They do not
know what the life of the product is going to be. Therefore, many organizations are
creating new products for the markets in order to spread their risks. With the time lag
between an invention and a product shortening, many of these products are new products
that have just been invented. According to one estimate, 80 percent of new products
that we will be buying in ten year's time have yet to be invented.
7. It Alters Organizational Relationships: Technological Change can alter relationships
to customer bases, channels of distribution, customer applications, and customer
knowledge etc. - either reinforcing existing patterns or radically altering them. The
development of fast and efficient photocopying machines has benefited business and
government tremendously. It has created a new industry and also sounded the death
knell for the carbon copy industry. Other examples of similar radical innovations are the
electronic vacuum tube, the transistor, the incandescent lamp, and microprocessors, each
of which fostered new industries.
8. It is a Business Strategy: Technological change can also be a business strategy.
Some companies are using convergent change, i.e., introduction of incremental innovations
in their products, as a strategy for business growth. The corporate objectives of 3M
specify that 30 percent of its turnover must come annually from new products. Gillette
introduces at least 10 new products every year; while Netscape introduces a new product
every six months; and British Airways refreshes its service classes every five years.
Change, for these companies, has become a way of staying ahead of their competitors.
Decisions regarding technological change envelop the entire organization. The decisions
on technological change are taken by the engineering department as well as by the
production, marketing, finance, planning and human resource development departments.
It may range from strengthening existing competencies of the firm to making obsolete
existing competencies, e.g., product design, process, skills of personnel, knowledge base.
The impact of these decisions, when taken with foresight and care, can provide rich
dividends to the firm. Because of the complexity of relationships that such changes
impact, accepting 'technological change' is often difficult, though it provides an excellent
opportunity to the firm. 267
Technology Management 9. It Develops Disruptive Technologies: There is a new technological revolution that is
creating great concern in industry. The extent and magnitude of the concern with this
technological revolution is enhanced because this type of technological change is no longer
restricted to a single industry. No industry can afford to ignore what is happening around it
and it is creeping into all areas of our work.
This revolution is based on the evolution of a large number of generic technologies.
These technologies have changed the way we do business and they apply to a wide
range of industries. They have also created opportunities, and enterprises that recognize
the opportunity take advantage and reap immeasurable advantages.
In 1894, when Guglielmo Marconi invented a way to send messages through the air, the
Italian government turned down his offer of first rights because it saw no use for the
technology. After all, Marconi's crude prototype could only send signals a hundred yards
-- hardly a match for the increasingly popular telephone. It was difficult to imagine that
such a weak transmission method would pave the way for everything from television to
cellular phones. Even now, 100 years later, wireless is still opening up new markets and
changing the way governments and businesses communicate and operate.
Marconi's wireless invention represents what some historians call "disruptive technologies."
These are technologies -- the internal combustion engine, transistors and the Web browser,
for example -- those not only create new industries, but eventually change the world.
Disruptive technologies often come from outside the mainstream. The light bulb was not
invented by the candle industry looking to improve output.
The organization must keep track of movements outside established markets. Something
such as the personal computer or the Internet is always just around the corner. These
innovations, e.g. information technology, communications technology and biotechnology
etc., have changed the complexion of many industries. These generic innovations are
invading areas of business operations in directions that had not been predicted and are
impacting the way business is being carried out.
The telephone is a disruptive technology that has changed the way marketing is carried
out. It introduced a radically new approach - direct selling through the telephone.
Surprisingly, this change was brought in by the staid and conservative insurance business
in the United Kingdom. This was started by some members of the British insurance
industry and was then adopted by the industry. Direct selling through the telephone
resulted in the total restructuring of the insurance industry.
Box 9.11: The Banking Industry

Following the insurance industry, banks introduced direct selling over the telephone. In the
1980s, one or two banks in the United Kingdom, realizing the strategic potential of the
telephone, introduced telephone-banking services backed up by sophisticated information
technology systems. This action in an industry, which generally operated in a relatively
stable environment, changed the market position of the banks in the industry. Customers
saw the innovative banks as having provided massive improvements in the levels of service
- they had 24-hour access every day of the year. The cost base of banks had reduced,
switching from an expensive physical infrastructure to a professional call centre in one city
handling all the business. The banks were now able to increase the range of services
offered. The ordinary telephone with the help of new information technology had opened
up the industry in a manner not possible earlier.

It then spilled over into banking, and other financial services. Today, a large part of
selling of services and products, worldwide, is done through direct telephone selling.
268 Technological change can emanate from unexpected sources. A small idea, promoted
and executed by a group of conservative businessmen, has changed the way industry Technology Absorption and
Innovation
conducts business. This was adopted by others and it created an industry practice.
By the process of diffusion the innovation caught the interest of the business fraternity
and it was changed into a world wide practice. The innovation was extended and integrated
with other innovations and it formed a totally new innovation. The new innovation has in
turn given rise to a family of innovations. This is typical of technological change.
An example is the World Wide Web. If we think today's Web is transforming the way
business is done, imagine the kind of impact tomorrow's Web will have. It is expected
the next generation Internet will provide small businesses and large corporations alike
the kind of agility necessary to compete and succeed in the digital economy. Advanced
Internet software is on the horizon that will hammer out contracts, find suppliers, etc.
and accomplish all of this in a day, if not a matter of minutes. One will be able to collaborate
and communicate seamlessly, no matter where one is or what device one is using. It will
be possible to interact with computers in more natural ways, using speech, handwriting
and simple gestures. The PC may still sit on the desk, but it will be the hub of a broad
"personal network" of devices and services that, in combination with smart Internet
software, will keep we connected, informed and entertained no matter where we are.
Box 9.12: Encyclopedia Britannica

Encyclopedia Britannica was one of the strongest and best known brand names in the
world, in its area of operation. CD-ROMS have, today, destroyed Encyclopedia Britannica
and the printed encyclopedia business and replaced them in the market. With the new
technology, the cost of producing a CD-ROM was about Rs. 100.00 compared to the cost of
Rs. 1500.00 for printing, binding and physical distribution of a set of encyclopedias.

The cost advantage coupled with an aggressive new player reduced the sales of Britannica
by nearly fifty percent. It disrupted the value proposition of an established business. With
declining revenues, Britannica's owners, a trust controlled by the University of Chicago,
finally sold out.

The Britannica case demonstrates how quickly and drastically the new economics of
information can change the rules of competition. New players and substitute products can
make obsolete such traditional sources of competitive advantage as an excellent sales
force, a supreme brand and even the world's best content.

All these developments not only affect the way we do business, but a more profound
transformation is taking place - over the next decade the new economics of information
will precipitate changes in the structure of entire industries and in the ways companies
compete. Many other disruptive technologies have the capability to radically change
industry if the right technology strategy is used.
Table 9.4: Disruptive Technologies: Winners and Losers

Dominant Firm Product Disruptive Technology Winning Challengers

GM and Ford Small cars Japanese quality & Toyota and Honda
manufacturing expertise
Gillette Razor blades Stainless steel technology Wilkinson
Gillette Cheap razors Plastic technology Bic
Parker Fountain pens Ball point pen technology Bic
Swiss watchmakers Timepieces Lever-action watch technology Timex

Timex Watches Electronic technology Casio, etc.

269
Technology Management Table 9.2 shows how disruptive technologies can affect the fortunes of different
organizations. In each case, the established companies/industries saw the emerging
technology coming, but they failed to take the threat seriously. The result was that the
leader was displaced by a rank outsider. It is organizations who keep track of movements
outside their established markets early enough who are able to avoid the consequences.
Two potentially disruptive technologies watched closely today are open-source software
and nanotechnology. Each holds the promise of radically changing the landscape of
information technology. The concept of open-source software, for example, challenges
many notions about how software should be created and sold. Linux, developed under
the open-source license, is already provoking turmoil in the market for operating systems.
The same holds true for nanotechnology. Nanotechnology can greatly change the attributes
of products that we know by integrating small, cheap computational devices in everything
from shoes to unmanned aerial vehicles. For example, Raytheon, MIT and DuPont won
a $50 million contract from the U.S. Army in May 2002 to establish the Institute for
Soldier Nanotechnologies, an organization that will take basic nanoscale research and
apply it to developing smart uniforms. These uniforms, applied with nano-scaled sensors
and coatings with uniquely customized properties, will be able to heal wounded soldiers.
In addition there are many other such technologies that have incredible potential. The
promise of modern biotechnologies, genetic engineering, and genomics is enormous.
These are some of the other emerging generic technologies, along with new material
sciences, that will radically change and impact processes being used in large industry
segments; they will make obsolete many of the existing industries in the chemical,
pharmaceutical, food processing and agriculture based industries; they will create new
industries and new economics of value wherever their application is possible; and, they
will change the way that many of these industries operate as well as their competitive
environment.
For example, 'Biotechnology' is one of the many such technological developments taking
place. Biotechnology is the use of living organisms to manufacture pharmaceuticals and
other products and in industrial processes. Traditionally, biotechnology included well-
established microbial processes such as brewing, sewage disposal, and the production of
antibiotics. However, the term has become particularly familiar since the development
of genetic engineering during the 1970s. Biotechnology, today, uses organisms genetically
altered to work more effectively than before, or to function in entirely new ways. Within
the next few decades they should make it possible to cure many genetic disorders, or
repair tissue damage. These new biotechnologies offer the potential to significantly
improve the quality of life and bring new remedies for the malaises of mankind.
Some of the developments in this area are given below:
1. Genetic Modification of Food: Genetic Modification of Food is the alteration of the
genome of plants grown for food. We can now introduce specific genes, for a defined
purpose, not only from another strain of the same plant, but from a totally different
species. The gene donor may be another plant, an animal, or a microorganism. A number
of genetically modified foods are already in the market.
2. Cloning: Cloning is the replication of the genetic code of living organisms. A biotechnology
company produced Polly, who was not only cloned, but also genetically transformed.
Polly had been fitted with a human gene that causes her to secrete a human blood-
clotting factor in her milk, which potentially was of great value to hemophiliacs.
3. Materials science: Materials science is an interdisciplinary combination of physics,
270
chemistry, and engineering, is guiding the design of advanced materials and devices. It is
now using the recent advances in biotechnology. Recent examples include the discovery of Technology Absorption and
Innovation
ceramic compounds that retain their superconductivity at temperatures greater than -196
C (-321 F), the development of light-emitting polymers, and the enormous diversity of
other compounds. Even in conventional fields of chemical research, new, more powerful
analytical tools are providing unprecedented detail concerning chemicals and their reactions.
Technology is very often shaping our values. It is impossible to visualize all the implications
of new technology. The thrust of technology can be directed and changed. As we have
seen, the technologies described above can be used to the benefit of humanity, can cure
diseases that were incurable before, provide improved food and nutrition to the hungry
masses in the less developed countries, and repair tissue damage, etc. All in all, the
emergent triad of biotechnologies have much to offer that is wonderful and desirable, but
they could also lend themselves to abuse.
There are concerns that these powerful technologies could be taken too far. Cloning of
humans is already feasible and many regard this as both distasteful and dangerous. It
will also become possible to change the genetic makeup of an embryo, giving rise eventually
to the possibility of the "designer baby" - a human being specified to the last gene as
precisely as present-day cars or computers.
9.7.3 Technological Change and Society
The objective of many organizations is to initiate technological change. However, to the
manager, "Technological Change is provision of new information or knowledge, used
effectively in industrial operations, having measurable effects on costs, quality, level of
output or sales, and other ancillary operations of the firm." He measures technological
change in terms of the added value that is provided to the consumer or the firm. Therefore,
technological change should:
l either provide the same product or service at a lower cost
l provide a better product or service at the same cost
l provide a new product or service that was not available earlier that provides value
to the consumer
The transformation from ideas into a successful product, process or extending the
Technology Life Cycles is difficult. Transformation is the heart of the complex process
of 'innovation'. Not every invention is transformed into an innovation, and consequently,
not every innovation can be successful. Few inventions are successfully innovated into
new products, and even fewer new products succeed commercially.
9.7.4 Technology Involves Strategy
The concept of technological change, where it is judged in terms of the introduction and
acceptance of new products that provide an improved value to the consumer in terms of
efficiency of performance, reliability, durability, cost of production, ecological impact,
and end-of-life disposability, has strategic implications.
A new technology, more than just its nuts and bolts, includes elaborate systems of planning
and production. As these processes are adopted, the nature of technological change itself
changes. To maintain its competitive edge, incremental innovation becomes a requirement.
The organization has to develop capability so that stimuli for change come from internal
dynamics of the organization. In order for this to happen, the organization has to create
distinctive technological competences in the organization structure and on its values and
norms. Also these decisions involve large commitment of funds and a large commitment of
time. Once made, their reversal or even a major shift becomes difficult or even irreversible. 271
Technology Management 9.7.5 Technology is Amoral
Human beings have a unique ability to shape the world they live in. Innovations have
given us the power to transform our environment, extend our life span, create vast,
interconnected societies, and even explore the stars. The technologies that have made
this possible -- from the simplest wooden plough to the most advanced personal computer
-- have also helped bring about fundamental economic and social change. Technology
represents man's capacity to harness nature and the forces around him to further his
productive efforts.
As technology has no religion and therefore no morality, it leaves it up to us to ask the
ultimate questions. Do we manufacture weapons of mass destruction? Do we clone
human beings? The answer is that technology has to be provided with a moral dimension
in addition to its political, social and cultural one. The exercise of technological choice
requires political, social and cultural institutions to exercise their will and influence where
the effects and possible impacts of technological change can be openly addressed.
The socio-cultural system also determines how technology is absorbed and diffused.
The example of the first war of independence on the Indian subcontinent has been
mentioned earlier. This points to a general hypothesis that when there are major differences
in socio-cultural patterns of the structural entity where the new systemized knowledge
has to be implanted; technology change is not based on the generation of knowledge but
on the conversion of this knowledge into better value for the consumer by strengthening
it within the existing structures.

Check Your Progress

Prepare a report on any Indian organisation which you think is totally technology
driven.

9.8 LET US SUM UP

Technology is a key resource for corporate profitability & growth. A company's
manufacturing function can be a formidable competitive weapon if its workforce &
technological capabilities are tuned to meet the firm's strategic needs. Consider the
process of technological innovation. Many factors influence the progress and direction
of technology. For example, science, organizational policy, organization structure, chance,
need, and funding all play major roles in determining what technologies are likely to be
available to us in the future.
Technological innovation includes the entire process--from R&D in the laboratory to
successful commercialisation in the marketplace and includes everything from invention
to its first commercial use to incorporating improvement in existing technology. Innovation
can be viewed as process . It can be viewed as new invention, discovery, new ways of
doing things, new product, new ways of servicing, new uses of existing products, etc.
To enhance innovation in the organization, certain characteristics like: Growth Orientation
Vigilance, Commitment to Technology Acceptance, Cross Functional Co-Operation,
Diverse Range of Skills, and being futuristic are required in the organizations.
Technology helps gain an edge over competitors on all the four Ps of Marketing: Product,
Price, Place, Promotion.
272
Technology transfer and absorption is similar to Internal R&D with networking. The Technology Absorption and
Innovation
difference is that there is much more effort put into searching for, learning about, and
translating existing, no-cost technologies to the company's applications. Internal technical
capability is required to understand the technologies found and to develop them into
solutions for the company's applications.
Companies acquiring technology from external sources must have sufficient capabilities
inside the company to understand the advantages and disadvantages of the choices
before it. Lacking a technical person who understands the technological aspects of the
opportunity well enough to discern the pros and cons of the various options, will leave the
decision making entirely to those who will decide based on price or long-term relationships.

9.9 KEY TERMS

Technology Adoption: A process of adopting technology fit for the organization.
Technology Diffusion: The extent of technology diffusion at any given time is defined
by the degree to which it is being applied at that time.
Technological Literacy: It can be described as the intellectual processes, abilities and dispositions
needed to understand the link between technology, themselves, and society in general.
Innovation: It can be viewed as new invention, discovery, new ways of doing things,
new product, new ways of servicing, new uses of existing products, etc.
Hypercompetition: Conditions in which the rate of change in the competitive rules of
the game are in such a flux that only the most adaptive, fleet, and nimble organizations
will survive.
Green Revolution: The Green Revolution was marked by productivity increases in food
grains through the use of high yielding technology and modern inputs.
White: Marked by productivity increases in milk.
Blue: Marked by productivity increases in sea food.
Yellow Revolution: A revolution marked by productivity increases in oil seeds through
the use of high yielding technology and modern inputs.
Technology Transfer: The application of technology to a new use or user.

9.10 TEST QUESTIONS

1. What is Innovation? How will you classify innovation?
2. List the characteristics an organization should possess in order have a technology
-driven strategy.
3. "In today's dynamic world it is only technology/innovation which can give strategic
advantage," Give a critical comment on this statement.
4. "It is not the technology rather it is the technology application which provides the
edge," Give a critical comment on this statement.

273
Technology Management 5. Write short notes on:
l Technology,
l Technology Diffusion,
l Appropriate Technology,
l Technology Transfer,
l Technological Literacy.
6. Discuss the role of technology in the development of India.
7. Discuss the present status of technology in India and Indian business organization.

9.11 SUGGESTED READINGS

Bowonder B. and Miyake T., Technological forecasting, Methodologies and Case
Studies.
Gerard H. Gaynor, Handbook of Technology Management, Mc-GrawHill.
Noori H & Radford R.W., Reading and cases in the Management of New Technology,
Englewood Cliffs, N.J. Prentice Hall, 1990.
Business Today, Jan. 7, 1999.

274
LESSON

10
TECHNOLOGY MEASUREMENT
CONTENTS
10.0 Aims and objectives
10.1 Introduction
10.2 Technology Measurement
10.3 Technology Audit
10.4 Let Us Sum Up
10.5 Key Terms
10.6 Test Questions
10.7 Suggested Readings

10.0 AIMS AND OBJECTIVES

After studying this lesson, you will be able to understand:
1. The instrumentation of technology measurement.
2. The fundamental different types of measures for technology innovation.
3. The approaches to assess the business potential and value of new technologies.

10.1 INTRODUCTION
Measurement and instrumentation includes sensors, actuators, medical instrumentation,
fundamentals of measurement including measurement standards, uncertainty,
dissemination and calibration. A company's information technology capacities can limit
or enhance the ability to respond to market conditions. New technological infrastructures
enhance the creation of new forms of organization, and in the process, also create a
complex environment that on the one hand increase the demand for cost-control
standardization and on the other stimulate the demand for innovation in order to respond
to client demands. Most companies are not capable addressing this dual requirements.
Thus, we find ourselves in a complex decision-making scenario since there is a need to
invest in IT infrastructure, processes and projects in order to render companies competitive
despite the lack of measurements for the (un)successful impact on company profitability
that these investments have.

10.2 TECHNOLOGY MEASUREMENT

There are two fundamentally different types of measures for technology innovation:
the organizational level and the political level. The measure of innovation at the
organizational level relates to individuals, team-level assessments, private companies
from the smallest to the largest. Measure of innovation for organizations can be
Technology Management conducted by surveys, workshops, consultants or internal benchmarking. There is today
no established general way to measure organizational innovation. Corporate
measurements are generally structured around balanced scorecards which cover several
aspects of innovation such as business measures related to finances, innovation process
efficiency, employees' contribution and motivation, as well benefits for customers.
Measured values will vary widely between businesses, covering for example new
product revenue, spending in R&D, time to market, customer and employee perception
& satisfaction, number of patents, additional sales resulting from past innovations. For
the political level, measures of innovation are more focussing on a country or region
competitive advantage through innovation. In this context, organizational capabilities
can be evaluated through various evaluation frameworks, such as those of the European
Foundation for Quality Management. The OECD Oslo Manual (1995) suggests standard
guidelines on measuring technological product and process innovation. Some people
consider the Oslo Manual complementary to the Frascati Manual from 1963. The new
Oslo manual from 2005 takes a wider perspective to innovation, and includes marketing
and organizational innovation. These standards are used for example in the European
Community Innovation Surveys.
Other ways of measuring innovation have traditionally been expenditure, for example,
investment in R&D (Research and Development) as percentage of GNP (Gross National
Product). Whether this is a good measurement of Innovation has been widely discussed
and the Oslo Manual has incorporated some of the critique against earlier methods of
measuring. This being said, the traditional methods of measuring still inform many policy
decisions. The EU Lisbon Strategy has set as a goal that their average expenditure on
R&D should be 3 % of GNP.
The Oslo Manual is focused on North America, Europe, and other rich economies. In
2001 for Latin America and the Caribbean countries it was created the Bogota Manual
Many scholars claim that there is a great bias towards the "science and technology
mode" (S&T-mode or STI-mode), while the "learning by doing, using and interacting
mode" (DUI-mode) is widely ignored. For an example, that means you can have the
better high tech or software, but there are also crucial learning tasks important for
innovation. But these measurements and research are rarely done.
A common industry view (unsupported by empirical evidence) is that comparative cost-
effectiveness research (CER) is a form of price control which, by reducing returns to
industry, limits R&D expenditure, stifles future innovation and compromises new products
access to markets. Some academics claim the CER is a valuable value-based measure of
innovation which accords truly significant advances in therapy (those that provide 'health
gain') higher prices than free market mechanisms. Such value-based pricing has been
viewed as a means of indicating to industry the type of innovation that should be rewarded
from the public purse. The Australian academic Thomas Alured Faunce has developed the
case that national comparative cost-effectiveness assessment systems should be viewed
as measuring 'health innovation' as an evidence-based concept distinct from valuing
innovation through the operation of competitive markets (a method which requires strong
anti-trust laws to be effective) on the basis that both methods of assessing innovation.
10.2.1 Global Innovation Index
The Global Innovation Index is a global index measuring the level of innovation of a
country, produced jointly by The Boston Consulting Group (BCG), the National Association
of Manufacturers (NAM), and The Manufacturing Institute (MI), the NAM's nonpartisan
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research affiliate. NAM describes it as the "largest and most comprehensive global Technology Measurement
index of its kind".
The International Innovation Index is part of a large research study that looked at both
the business outcomes of innovation and government's ability to encourage and support
innovation through public policy. The study comprised a survey of more than 1,000 senior
executives from NAM member companies across all industries; in-depth interviews
with 30 of the executives; and a comparison of the "innovation friendliness" of 110 countries
and all 50 U.S. states. The findings are published in the report, "The Innovation Imperative
in Manufacturing: How the United States Can Restore Its Edge."
The report discusses not only country performance but also what companies are doing
and should be doing to spur innovation. It looks at new policy indicators for innovation,
including tax incentives and policies for immigration, education and intellectual property.
The latest index was published in March 2009. To rank the countries, the study measured
both innovation inputs and outputs. Innovation inputs included government and fiscal
policy, education policy and the innovation environment. Outputs included patents,
technology transfer, and other R&D results; business performance, such as labor
productivity and total shareholder returns; and the impact of innovation on business
migration and economic growth.

10.3 TECHNOLOGY AUDIT

The general definition of an audit is an evaluation of a person, organization, system,
process, enterprise, project or product. Audits are performed to ascertain the validity
and reliability of information; also to provide an assessment of a system's internal control.
The goal of an audit is to express an opinion on the person / organization/system (etc) in
question, under evaluation based on work done on a test basis. Due to practical constraints,
an audit seeks to provide only reasonable assurance that the statements are free from
material error. Hence, statistical sampling is often adopted in audits. In the case of
financial audits, a set of financial statements are said to be true and fair when they are
free of material misstatements - a concept influenced by both quantitative and qualitative
factors. Audit is a vital part of Accounting. Traditionally, audits were mainly associated
with gaining information about financial systems and the financial records of a company
or a business. However, technology auditing includes other information about the
technology and systems used in an organisation, such as information about security risks,
information systems performance, and environmental performance.
A technology audit has more positive aspects, potentially, than negative. An audit means
to enumerate the things that an audit is not. Perhaps our societal concept of a tax audit
overshadows and unnecessarily skews our understanding of what an audit really is and
can be. As we gather more and more techno-devices around us, we recognize the need
to ensure that they are all accounted for, are working properly, and are being employed
for proper purposes-purposes that advance the cause for our organizations. A technology
audit, then, exists at its very core as an activity that focuses our full attention upon
improvement-real, sustainable improvement. As a matter of fact, an audit can be a very
positive beginning to effective planning for technology. Knowing clearly where one is is
critical to knowing where to go next, where the "holes" in the system or processes are,
and where your successes are.

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Technology Management

Figure 10.1: Technology Plan/Audit Interaction Model

This model shows the importance of return on investment (ROI) in terms of both the
"learning profit" (student achievement) and the "techno-stuff profit" (technology assets)
if we desired to focus on only those two elements emerging from the technology plan.
Notice that the technology plan sets up the objectives that feed into, or target, achievement
and the technology assets that support the achievement environment. The technology
audit activity, then, examines these interactions.
Technology assets can be thought of as the "techno-stuff." It is realized that this is not a
uniform condition extending across all situations. For the discussion of this model, though,
we will categorize "techno-stuff" as investments in various technologies: hardware,
software, infrastructure, facilities, support, etc. All these are certainly necessary for
optimum student achievement and we recognize that the technology assets are required
for optimum administrative and other uses in the school. At this point, however, we shall
focus upon student learning outcomes. Further, these technology assets may serve their
best function when they work so well that they become almost transparent-that is, the
students and teachers don't even think about their being there. They just "work" to support
the objectives emanating from the technology plan. Now, the technology audit can examine
not only the interactions among these elements, but also the cascade of outcomes that
result from effective interactions. Perhaps another graphic would show this more clearly.
When organisations purchase technology tools, they do so in an informal, random fashion
or they are following a well thought out plan. There arise legitimate questions as to
whether they are prepared to answer swiftly, accurately, and gladly. They are to position
themselves to address these and other equally important questions. Technology audits,
then, became quite important as a means of formalizing evaluation strategies. They are
important to the professionals, to the community, and to the fellow customers of their
organisation. With a sound strategy for auditing in mind, they become much more
comfortable knowing that now they can demonstrate their accountability more easily.

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 Technology Measurement

Figure 10.2: System Outcomes Audit Model

10.3.1 Information Technology Audit
An information technology audit, or information systems audit, is an examination of the
controls within an Information technology (IT) infrastructure. An IT audit is the process
of collecting and evaluating evidence of an organizations information systems, practices,
and operations. The evaluation of obtained evidence determines if the information systems
are safeguarding assets, maintaining data integrity, and operating effectively and efficiently
to achieve the organizations goals or objectives. These reviews may be performed in
conjunction with a financial statement audit, internal audit, or other form of attestation
engagement.
IT audits are also known as automated data processing (ADP) audits and computer
audits. They were formerly called electronic data processing (EDP) audits.
Purpose
An IT audit should not be confused with a financial statement audit. While there may be
some abstract similarities, a financial audits primary purpose is to evaluate whether an
organization is adhering to standard accounting practices. The primary functions of an
IT audit are to evaluate the systems efficacy and security protocols, in particular, to
evaluate the organizations ability to protect its information assets and properly dispense
information to authorized parties. The IT audits agenda may be summarized by the
following questions:
l Will the organizations computer systems be available for the business at all times
when required? (Availability)
l Will the information in the systems be disclosed only to authorized users?
(Confidentiality)
l Will the information provided by the system always be accurate, reliable, and timely?
(Integrity)
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Technology Management The IT audit focuses on determining risks that are relevant to information assets, and in
assessing controls in order to reduce or mitigate these risks. By implementing controls,
the effect of risks can be minimized, but cannot completely eliminate all risks.
Types of IT Audits
Various authorities have created differing taxonomies to distinguish the various types of
IT audits. Goodman & Lawless state that there are three specific systematic approaches
to carry out an IT audit:
l Technological innovation process audit: The aim of this audit is to construct a
risk profile for existing and new projects. The audit will assess the length and depth
of the companys experience in its chosen technologies, as well as its presence in
relevant markets, the organization of each project, and the structure of the portion
of the industry that deals with this project or product, organization and industry
structure.
l Innovative comparison audit: This audit, as its name implies, means conducting
an analysis of the innovative abilities of the company being audited, in comparison
to its competitors. This requires examination of companys research and development
facilities, as well as its track record in actually producing new products.
l Technological position audit: This audit reviews the technologies that the business
currently has and that it needs to add. Technologies are characterized as being
either base, key, pacing, or emerging.
Others describe the spectrum of IT audits with five categories of audits:
l Systems and Applications: An audit to verify that systems and applications are
appropriate, are efficient, and are adequately controlled to ensure valid, reliable,
timely, and secure input, processing, and output at all levels of a systems activity.
l Information Processing Facilities: An audit to verify that the processing facility
is controlled to ensure timely, accurate, and efficient processing of applications
under normal and potentially disruptive conditions.
l Systems Development: An audit to verify that the systems under development
meet the objectives of the organization, and to ensure that the systems are developed
in accordance with generally accepted standards for systems development.
l Management of IT and Enterprise Architecture: An audit to verify that IT
management has developed an organizational structure and procedures to ensure a
controlled and efficient environment for information processing.
l Client/Server, Telecommunications, Intranets, and Extranets: An audit to verify
that controls are in place on the client (computer receiving services), server, and on
the network connecting the clients and servers.
And some lump all IT audits as being one of only two type: general control review
audits or application control review audits.
IT Audit Process
The following are basic steps in performing the Information Technology Audit Process:
1. Planning
280 2. Studying and Evaluating Controls
3. Testing and Evaluating Controls Technology Measurement

4. Reporting
5. Follow-up
6. pursuit By (r.d)
Security
Auditing information security is a vital part of any IT audit. The broad scope of auditing
information security includes such topics as data centers (the physical security of data
centers and the logical security of databases), networks and application security. Like
most technical realms, these topics are always evolving; IT auditors must constantly
continue to expand their knowledge and understanding of the systems and environment&
pursuit in system company
History of IT Auditing
The concept of IT auditing was formed in the mid-1960s. Since that time, IT auditing has
gone through numerous changes, largely due to advances in technology and the
incorporation of technology into business.
International Law Regarding IT Auditing
(a) US Regulations and Legislation Related to IT Audits
Several information technology audit related laws and regulations have been introduced
in the United States since 1977. These include the Gramm-Leach-Bliley Act, the Sarbanes-
Oxley Act, the Health Insurance Portability and Accountability Act, the London Stock
Exchange Combined Code, King II, and the Foreign Corrupt Practices Act.
(b) European Union Regulations and Legislation Related to IT Audits
Directive 95/46/EC on the protection of personal data exists primarily to ensure the
protection of the privacy of individuals in regards to digital information.
Audit Personnel
(a) Qualifications
As the field is relatively young, not all jurisdictions have developed a pre-defined skill set
that is required when evaluating the qualifications of IT audit personnel. Since auditors
will be responsible for evaluating the controls affecting the recording and safekeeping of
assets, it is recommended that IT personnel have detailed knowledge regarding information
systems with a general understanding of accounting principles.
In the United States, usually it is considered desirable that IT audit personnel have received
or qualify to receive the Certified Information Systems Auditor (CISA), Certified Internal
Auditor (CIA), Certified Information Systems Security Professional (CISSP), Certified
Public Accountant (CPA), Diploma in Information System Audit (DISA from the Institute
of Chartered Accountants of India (ICAI-India)(ICAI)) and Certification and
Accreditation Professional (CAP) credentials. The CISM and CAP credentials are the
two newest security auditing credentials, offered by the ISACA and ISC2, respectively.
Strictly speaking, only the CISA title would sufficiently demonstrate competences regarding
both information technology and audit aspects.
Outside of the US, various credentials exist, with differing value and safeguards of
professionalism. E.g., the Netherlands has the RE credential (as granted by the 281
Technology Management NOREA(Dutch site) IT-auditors association), which among others requires a post-
graduate IT-audit education from an accredited university, subscription to a Code of
Ethics, and adherence to strict continuous education requirements.
(b) Professional Certifications of Note
l Certified Information System Auditor (CISA)
l Certified Internal Auditor (CIA)
l Certification and Accreditation Professional (CAP)
l Certified Computer Professional (CCP)
l Certified Information Systems Security Professional (CISSP)
l Certified Information Security Manager (CISM)
l Certified Public Accountant (CPA)
l Chartered Accountant (CA)
l ISO 27002 Lead Auditor (ISO/IEC27002)
(c) Other Employees Involved in IT Audits
l Board of directors
l Senior management
l Audit management
l External audit staff
l Internal audit staff
l Operations managers
Emerging Issues
Technology changes rapidly and so do the issues that IT auditors face. Some emerging
issues include biometric retinal scans, changes in physical security, and transmitting data
from cell phones.
Information Systems Security Auditing
IS security auditing involves providing independent evaluations of an organizations policies,
procedures, standards, measures, and practices for safeguarding electronic information
from loss, damage, unintended disclosure, or denial of availability. The broadest scope of
work includes the assessment of general and application controls. The current state of
technology requires audit steps that relate to testing controls of access paths resulting
from the connectivity of local-area networks, wide-area networks, intranet, Internet,
etc., in the IT environment.
The results of these evaluations are generally directed to the organizations management,
legislative bodies, other auditors, or the public. IS security auditing may be performed in
engagements where
l The specific audit objective is to evaluate security, or
l The audit objectives are much broader, but evaluating security is a necessary subset.
282 (For example, an audit objective such as financial statement assurance or program
 evaluation frequently may be met only when there is assurance that the security of Technology Measurement
the financial or program data is adequate.)
State and Local Government IS Audit Organizations
The size of the audit organization and the placement of the IS audit function within the
organization may affect strategies for establishing an IS security audit capability. State
and local government audit organizations vary widely in both the size and the organization
of their IS audit functions. Some audit agencies have not established an IS audit function
at all, and instead contract for those services. Others integrate their IS auditors into their
financial or operational audit teams. Still others have separate IS audit groups who work
in support of the financial or operational teams. Despite these variations, however, audit
organizations should be able to establish an IS security audit capability in a manner
appropriate for the audit organizations size, structure, and mission.
Developing a Strategic Plan for an IS Security Auditing Capability
(a) Define Mission and Objectives
A mission statement for the IS security audit capability should be established. This
document should outline the responsibility, authority, and accountability of the IS security
audit capability. In addition, a vision statement and a statement of values and goals
should be created. These statements serve to further define the mission of the IS security
audit capability and set the stage to define the specific objectives desired by agency
management.
Deciding on your organizations objectives for creating or enhancing an IS security audit
capability will aid you in identifying the types of tools, skills, and training needed. Objectives
should be defined beforehand, without first considering how and by whom the objectives
would be met (for example, whether resources would be in-house, contractor, shared
staff, or some combination). Also, consider focusing on a three- to five-year planning
horizon rather than on what can be implemented immediately. Setting interim milestones
will help to achieve a staged implementation of your planned strategy. Among the many
potential objectives for an IS security audit capability, several types are common:
l To support financial statement audits by, for example, assessing IS security controls.
This assessment may affect the nature and extent of financial audit steps to be
performed, as well as provide timely support for needed improvements in computer-
related controls.
l To support performance audits, such as assessing how well an information system
protects the integrity and reliability of data and the effect of this level of protection
on program performance.
l To supplement IT audits by assessing the effectiveness of security within the context
of a general and/or application-specific controls audit.
l To provide independent system security audits, so that risks are clearly identified
and can be addressed.
l To support investigative and/or forensic audits, for example by identifying
unauthorized access to and manipulation of sensitive data.
l To provide support for sophisticated data analysis and extraction through computer-
assisted audit techniques (CAATs).
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Technology Management l To provide an auditors perspective on IS security during system development, so
that controls can be appropriately designed into the system.Your organizations
objectives for developing an IS audit capability may combine the above or vary
from them. Whatever the objectives, identifying them beforehand will provide a
sound cornerstone on which to build the capability.
b) Assess IS Security Audit Readiness
In building an IS security audit capability, management should assess the organizations
IS security audit readiness by taking into account the relevant factors discussed below.
Establishing a baseline in these areas by identifying strengths and weaknesses will help
an organization determine the best way to proceed. In many instances, this process will
determine what is practical to implement within given time and budget constraints.

Check Your Progress

Write a study note on the importance of technology audit for an organisation.

10.4 LET US SUM UP

Technologies lie at the heart of any manufacturing company - whether used in making
the products or forming an integral part of the products themselves. Successfully
assimilating existing technologies into the business and anticipating the impact of emerging
new technologies are critically important tasks for companies under pressure to bring
new products to market as quickly as possible.
While technology management is traditionally considered in the context of R&D and
product development, it is increasingly recognised that the impact of technology is far
wider than this. By integrating technology-related issues into every stage of business
decision making, technology management can link the strategic management of a business
to the science and technology that underpins it, ensuring companies make the most of
their technological investments and opportunities.
As technologies become increasingly specialised many companies find they are no longer
self-sufficient in research and development. Instead, they need to learn new ways to
identify and acquire the technologies they require, if necessary establishing collaborations
and joint ventures with other companies. There is need for developing ways to integrate
technology considerations into medium and long-term strategic decision making.
There is need for encouraging a more strategic approach to design and innovation and
developing new approaches to the management of design. There is need to learn more
about the life cycle of young, technology-based companies. There is need for integrating
business considerations into software development strategies. There is need for tracking
new issues resulting from the rapidly changing technological environment. There is need
for approaches to assess the business potential and value of new technologies.
An information technology audit, or information systems audit, is an examination of the
controls within an Information technology (IT) infrastructure. An IT audit is the process
of collecting and evaluating evidence of an organizations information systems, practices,
and operations. The evaluation of obtained evidence determines if the information systems
are safeguarding assets, maintaining data integrity, and operating effectively and efficiently
to achieve the organizations goals or objectives. These reviews may be performed in
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conjunction with a financial statement audit, internal audit, or other form of attestation Technology Measurement
engagement.

10.5 KEY TERMS

Corporate Measurement: Corporate measurements are generally structured around
balanced scorecards which cover several aspects of innovation such as business measures
related to finances, innovation process efficiency, employees' contribution and motivation,
as well benefits for customers.
The International Innovation Index: The International Innovation Index is part of a
large research study that looked at both the business outcomes of innovation and
government's ability to encourage and support innovation through public policy.
Audit: The general definition of an audit is an evaluation of a person, organization, system,
process, enterprise, project or product. Audits are performed to ascertain the validity and
reliability of information; also to provide an assessment of a system's internal control.
Technology Audit: A technology audit has more positive aspects, potentially, than negative.
An audit means to enumerate the things that an audit is not.
Information Technology Audit: An IT audit is the process of collecting and evaluating
evidence of an organizations information systems, practices, and operations.

10.6 TEST QUESTIONS

1. What do you understand by the concept of technology measurement?
2. Discuss the concept of technology audit.
3. Discuss information systems security auditing.
4. Discuss the benefits of technology measurement and technology auditing.

10.7 SUGGESTED READINGS

Bowonder B. and Miyake T., Technological forecasting, Methodologies and Case
Studies.
Gerard H. Gaynor, Handbook of Technology Management, Mc-GrawHill.
Noori H & Radford R.W., Reading and cases in the Management of New Technology,
Englewood Cliffs, N.J. Prentice Hall, 1990.
Ashok Benerjee, Financial Accounting, Excel Books, New Delhi.
I.G. Gupte, Information Technology, Excel Books, New Delhi.
Dheeraj Sharma, Foundations of IT, Excel Books, New Delhi.

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