Management of Technology and Innovation in Japan

Invisible Dimensions of Innovation 53
consumed more amount of electricity, whereas the other company introduced, a
smaller, lighter, more electricity-saving PC which was in turn relatively slow in
terms of processing speed. Having many new products of which value of innovation
was based on combination of progress in various performance dimensions, it
would be more or less difficult to specify the value of a particular new product
relative to competitors’ products. In addition, some users may prefer a smaller,
lighter one, while others may value processing speed, which lowers the universality
of innovations’ value dimensions. Because of the complexity of multiple innovation
dimensions, it became less possible for both users and firms to simply capture
the value of innovation at the product-system level. Thus the multiplicity of
value dimensions consequently lowered visibility of innovations (see “b” in Figure
1).
However innovation visibility starts to rise again if competition continues along
the various innovation dimensions (see “c” in Figure 2). This is because under
competition to make better products with higher profit margins for not-yetsatisfied
customers, the respective innovation dimensions ultimately achieve levels
deemed satisfactory by customers. Manufacturers emulate each other's innovations,
and one by one, the innovation dimensions along which competitors can differentiate
their products from each other disappear. The pace of technological
progress almost always outstrips the ability of customers to utilize or absorb the
progress. Once product specifications along each of the dimensions reach levels
satisfactory to nearly every customer, further innovation, even if technologically
possible, fails to produce new value. This results in “overshooting” of visible innovations
1 .
Growth in the personal computer sector, which averaged 15 percent annually
throughout the 1990s, slowed starting in 2000 and then suddenly dropped by four
percent in 2001. In 2001 only 11 percent of all users considered buying a new PC,
the lowest number since 1995. This wasn't because PC demand itself had fallen. It
was because the stereotypical industry notion under which "faster new models
spur new demand" was simply no longer valid; the PC’s various functions had
reached levels sufficient to satisfy nearly every user. Customers no longer recognized
added value in new products, and hesitated to replace their PCs. This was
the most important reason why market growth stopped. 2
Until the 1990s, the single biggest driving force behind the PC industry was the
continuing cycle of innovation between Microsoft and Intel. Intel would develop a
faster MPU, and in response, Microsoft would release a new operating system
loaded with new functionality. The new OS, in turn, would require an even faster
MPU, resulting in a continuous chain of innovation. When there was still plenty of
room left for the "processing speed" dimension of innovation, this sort of visible
innovation powered PC industry growth and increased corporate revenues and
earnings. Processing speed, though, has already reached levels adequate for most
1 This logic of overshooting provides the basis of the disruptive innovation model by
Christensen. See C. Christensen, The Innovator’s Dilemma, Harvard Business School
Press, 1997.
2 "The PC's New Tricks," Fortune, October 28, 2002