technology cycle curve (source: Wikipefia)
New technologies follow a fairly well-understood “curve”. We can think of these curves in terms of profitability, but this is oversimplifying things. Much of the thinking about technology curves in the business world comes from the work of Nikolai Kondratiev in the 1920s.
The Kondratiev Curve
In his work, Kondratiev suggested that there are long-term cycles of economic development and growth, characterized by periods of prosperity and innovation followed by periods of stagnation and decline. These periods are driven by technological innovation.
During the periods of prosperity, known as Kondratiev upswings, there are rapid advances in technology and infrastructure, as well as increased productivity and economic growth. These upswings are typically accompanied by new inventions and innovations that have a significant impact on society and the economy. For example, the Industrial Revolution, which began in the late 18th century, is considered a Kondratiev upswing.
In contrast, the periods of stagnation and decline, known as Kondratiev downswings, are characterized by slower economic growth, decreased innovation, and declining productivity. These downswings are typically marked by economic crises, such as recessions and depressions, and may be accompanied by social and political instability.
Technology Curves in Strategy
While the application of this theory to economic thinking may have drawbacks, it is quite useful in understanding the path of a specific technology in an industry. Technological adoption and improvement in the early years of a technology tends to lead to rapid growth and profitability for the key players in an industry, while the downswings can indeed lead to crises an instability.
In the business world, most of the darling companies of the past 50 years have been companies in the upswing part of the cycle. This make sense, since the way most analysts value stocks relies heavily on the Black-Sholes model and puts a premium on growth.
Strategically, if you are in the upswing phase of your technology, congratulations. Your business is likely to be viewed favorably by investors and your main focus should be market share over anything else, including profit.
When your technology reached the top of the curve and begins the downswing, your strategic priorities should shift. At this point, market share is still a priority, but profit becomes much more important as your industry shifts from building the technology to exploiting the technology. Efficiency, execution and branding become much more important in this phase, and growth may be best achieved through identifying and exploiting niches or consolidation of the industry. If your business has geographic elements, you may also want to seek growth through geographic expansion.
Understanding where you are on the technology curve can be a critical element of setting good strategy. Simplified Strategic Planning offers a tremendous advantage for setting and executing such strategies. If you’d like to book a workshop on the process and its application in your organization, contact us at www.cssp.com/inhouse-workshop/