Jobs, Growth and S&T Policy

By Dennis R. Senik

In Canada, we spend $14 billion annually on government and post-secondary research: it provides over 4 percent of the world's scientific research, but earns us less than 2 percent of global GDP. This gap stems from S&T policy's failure to appreciate how technology drives 80 percent of GDP.

Technology is far more than applied science; since the first stone tools, it has developed practical know-how to meet human wants and needs. In contrast, science is an endless quest to know why.

Nobel physics laureate Steven Weinberg wrote, "We search for universal truths about nature, and, when we find them, we attempt to explain them by showing how they can be deduced from deeper truths."¹ Thomas Edison was brutally practical, "Anything that won't sell, I don't want to invent."

S&T policy treats science as the capital, and technology as just the interest. However, the opposite has been true, even in modern times. The steam engine was created by technicians, plumbers, self-taught mining engineers and blacksmiths. They designed, built and refined these workhorses for 125 years before the science of thermodynamics finally explained why they worked².

Nothing has changed:

• In October 1903, physicist Samuel Langley, Head of the Smithsonian Institution declared, "Aerial flight is one of that great class of problems with which men can never cope." Two months later, the Wrights flew the world's first aircraft - built in the back of their bicycle shop.
• In 1947, huge advances in aerodynamics could still not break the sound barrier. The aircraft that succeeded was designed after a 0.50 calibre bullet (known to travel faster than sound).
• Software, a craft that lacks scientific and mathematical foundations, is a global industry. Nanoscience is uncharted, yet Samurai craftsmen used nanotechnology centuries ago to make superior swords. Today, nanotechnology sells stain-resistant fabrics, catalysts and more - worth tens of billions.

Stripped to its barest essentials, technology is a process: the application of practical know-how to make products and services that add value to our lives. It creates new industries, like computers and aviation, whose products rewrite practice in old ones like banking, travel and entertainment. This process of meeting wants and needs is captured by the Value Chain³ (See Figure 1, below).

Scientific research is one input among many in applying technology to create wealth. Understanding how technology transforms inputs to reweave our economic fabric is vital to harnessing it for jobs and growth.

Technology's products and services continually reshape how society lives and works. The horse-drawn economy was overturned by automobiles, a process Schumpeter called "creative destruction." For new products, it is an uphill path. Old products, industries and their institutional framework are wrapped in the protective embrace of the status quo: established patterns of living and working. But old gives way to new in a recurring pattern. Because creative destruction is a cultural transition, it is channeled along a well-worn path. This pattern of market penetration is shown below in Figure 2.

New vanquishes old in five steps: 1) Introduction; 2) Lift-Off; 3) Transition; 4) Build-Out; and 5) Maturity. Each step is characterized by its relative growth rate and extent of market penetration.

This path is shaped by culture's hard-wired survival mechanism of deferring to established ways. Only about 1 in every 40 people is an innovator: they give new products a foot in the door.

In Introduction, innovators eagerly embrace new products, experimenting with applications while pioneering producers learn what works.

However, with each step deeper into markets, products must win over new users who are increasingly more reluctant to abandon familiar ways. As Figure 2 shows, it took over three human generations for automobiles to gain full market adoption. Over that time, the average rate of market growth cooled from double-digits in Introduction to just one percent in Maturity: the status quo yields grudgingly.

This recurring path of new product adoption is orchestrated by three interacting forces that deliver market-winning value: the product (its value proposition); its underlying technology (the technology system); and the industrial supply chain that creates, produces, operates and supports products. Each of these forces unfolds in a highly consistent pattern driven by culture.

The Value Proposition lies in the eye of the beholder. It is a measure of product worth: the sum of four benefits:

• Functionality (what products do for users) wins a toehold with innovative users. However, new products are often ugly ducklings. For example, early cell phones were as heavy as bricks and analog transmission resulted in poor performance. Much more was needed.
• Price must come down to break out of niche applications. Modern products which have (so far) failed include second generation biofuels, manned space flight, electric vehicles and fuel cells.
• Compatibility with mainstream markets is essential: products must ‘fit' society's patterns of living, working and institutional practices. Early cars had high ground clearance and commonly carried two spare tires to survive rudimentary roads. Not until late in Transition did society begin to adapt with modern highways. Build-Out brought suburbs, shopping malls, drive-through restaurants, and two-car garages.
• Ease-of-use must increase as products become commonplace. In Maturity, cars feature anti-lock braking, self-parking, self-monitoring and warn of lane departure and potential collisions. Cars that can drive themselves are coming.

Culture drives this evolution of value proposition; a continual ‘trading-up' from meeting needs to satisfying wants, first noted in Maslow's Hierarchy. To succeed, technology must continually bend to the will of markets.

For example, automotive technology took a back seat as early as 1921: the beginning of Transition, when wants began to surpass the need for basic transportation. Henry Ford, believing his Model-T was everything drivers could ever want, doubled down on engineering to make cars cheaper. GM surpassed Ford with creature comfort, stylish annual model changes and consumer credit. Technology further defers to marketing and distribution in Build-Out when producers must satisfy ever more segmented markets.

The Technology System is a ‘layer cake' of five basic parts that delivers the value proposition. Consider the familiar PC.

The major device is its first layer: the number-crunching central processing unit (CPU). It delivers basic functionality.

Supporting systems make computers easier to use (mouse, monitor) or assist the major device to do its job (cooling fan, power surge protection).

Components and materials are the third layer: e.g., transistors and circuitry. They enable continuing improvements such as packing more transistors closer together to increase computing power.

Design is the set of ideas, rules and practices that shape products. It further develops norms and standards that facilitate integrating all the parts. It is the 'yeast' that raises product performance.

Infrastructure is the ‘icing on the cake,' external (yet highly relevant) factors like wireless networks and the Internet that add to product value.

Technology System performance evolves in a series of ‘jumps,' each the result of a new design paradigm. For example, fighter aircraft long pursued speed as a primary factor in their value proposition (Figure 3).

Each design paradigm drove a new - longer - era of product competition. As Figure 3 shows, pioneering flight lasted just six years before it was surpassed by the eight-year reign of biplanes powered by lightweight rotary engines.

Subsequent eras lasted 10, 14 and 34 years, due in part to the growing technological complexity of integrating advances across the five layers of the technology system. The supply chain grows more complex as well.

The Industrial Supply Chain is the extensive network of organizations that realizes technol¬ogy's potential. For example, Boeing depends on 6,450 suppliers based in more than 100 countries. Supply chains expand from humble beginnings under a single roof. In 1903, the entire U.S. aerospace industry was the Wright's bicycle shop. Apple launched the PC business in similar fashion from the Jobs' garage.

However, supply chains grow in two ways. They decouple through serial specialization: the output at each stage becoming the input for the next link in the chain, illustrated below for the meat industry (Figure 4).

Each link further develops specialized supporting activities that disproportionately increase the efficiency and effectiveness of the direct activities that get products ‘out the door.' For example, cattle ranchers use bovine genetics to control important animal traits like growth rate and marbling.

Meat packing is highly automated: wireless networks capture and integrate real-time data from the slaughterhouse floor to the warehouse. There, sophisticated software speeds order-picking and optimizes use of dock facilities. In retail stores, Intel and SAP combined forces to track and process real-time sales and inventory data generated by RFID tags and the electronic product code.

This supply chain elaboration is a double-edged sword. The aerospace industry, soon to celebrate its 110th birthday, is an example. It has decoupled into many sub-categories in airframe, avionics and propulsion, all with specialist supporting activities. However, industry consolidation has dramatically reduced the number of prime contractors - and with it innovation all along the chain.

In the 1940s and 50s, forty different U.S. fighter designs flew, produced by nine different firms. Now, three firms remain: Boeing, Lockheed-Martin, and Northrup Grumman; one production jet remains, the F-35.

In the tighter circles of industry, established practices, thinking and relationships become entrenched.

In Conclusion

New product value proposition follows a highly consistent path from Introduction to Maturity, drawing on advances in the technology system and reinvention of the industrial supply chain to yield superior results. These interwoven factors are choreographed by the rate at which culture's patterns of living and working can realign to adopt technology's new possibilities.

Canada's industrial sectors are located at different stages along the highly consistent path from Introduction to Maturity. That path is long, and misalignments among the forces of value creation continually crop up, reducing jobs and growth. S&T policy focuses on the input of science rather than facilitating critical realignments like putting the horse of technology before the cart of science in order to work with the forces that create wealth.

Dennis R. Senik is CTO of Doyletech Corporation.

Key areas of focus are policy, tech transfer, impact analysis, strategy and mentorship.

¹ Weinberg, Steven, Dreams of a Final Theory, Random House Inc., New York, 1992.

²Carnot, Sadi, Reflections on the Motive Power of Fire and on Machines Fitted to Develop that Power, 1824.

³Porter, Michael, Competitive Advantage: Creating and Sustaining Superior Performance, (Revised Edition), The Free Press, 2004.