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Technological Extinctions of Industrial Firms: An Inquiry into their ...

Technological Extinctions of Industrial Firms: An Inquiry into their ...

64 tire building

64 tire building machines, were both licensed widely. In televisions, RCA not only licensed widely its key black and white patents but also provided technical assistance and later was forced to make most of its patents freely available. 54 The dominant design theory features a coalescence of product standards around a particular design. Before the emergence of the dominant design, new firms often break into the market by developing novel product features, and firms limit their process improvement efforts lest changes in the product require new manufacturing processes. Product innovation is relatively frequent and process innovation relatively infrequent. After the emergence of the dominant design, efforts shift to producing the standardized product at the lowest possible cost, with a consequent decrease in the importance of product innovation and increase in the importance of process innovation. This shift in innovative patterns causes the shakeout. Entry slows because novel product features no longer provide a basis to break into the market, and a shakeout ensues as those firms that are less able process innovators exit. Can this tale of shifting innovative demands explain the shakeouts in the four products? Findings 6 and 7 indicate that it cannot. Only in automobiles and tires was there a lasting shift in importance from product to process innovation. In automobiles the Model T and the advent of mass production techniques coincided roughly with the beginning of the shakeout, but the Model T was hardly a lasting design standard for the industry. Indeed, Utterback and Suarez [1993] identify the inexpensive closed-body developed one and a half decades after the shakeout began as essential to the industry’s dominant design. 55 In tires the decrease in product innovation and rise in process innovation preceded the shakeout by a full decade. And televisions and penicillin had patterns directly opposite that predicted 54 Although licensing has been estimated to enable innovators to appropriate only about one-third of the value of their innovations (Caves et al. [1983]), it may often be the lesser of the evils. It may forestall the kind of competition that ensued when the clincher tire patents were restrictively licensed and Goodyear and Firestone developed the straight-side tire, it may help the innovator establish its product as an industry standard, as in RCA’s case, and it may reduce the legal challenges to a patent that can often be prolonged and costly to defend, as occurred in a number of instances. Indeed, one reason major new forms of penicillin may not have been widely licensed is that they did not directly challenge older forms but opened up new submarkets, thereby limiting their competitive implications. 55 Utterback and Suarez mistakenly dated the shakeout in autos as beginning after 1923, apparently failing to notice that their source for data on the number of firms, Fabris [1966, p. 27], excluded all earlier exitors from his list of automobile makes.

65 by the theory, with the greatest process innovation in each industry’s earliest years, and the greatest product innovation after the shakeout was well underway. Given these conclusions, it is again hardly surprising that the theory is unable to explain finding 2, in which the number of firms fell for decades rather than leveling off once only the most able process innovators survived, or finding 3, in which some of the earliest entrants came to dominate their industry rather than entrants just prior to the shakeouts. As for all the theories, finding 1, the cessation of entry, matched the dominant design theory’s predictions. Findings 4 and 5 were not directly addressed by the theory. Overall, the evidence suggests that the emergence of dominant designs did not trigger the shakeouts. These conclusions beg the question of why firms did not delay process improvement as described in the theory. Why did process innovation generally not await the resolution of uncertainty about the configuration of the product or other factors that could render previous production processes obsolete? No doubt one reason was competition. Auto producers might have liked to delay investments in machine tools and factories until their rate of obsolescence declined, but being in the forefront of process innovation was key to the success of a number of firms, most prominently Ford. Similarly, penicillin producers might have liked to delay their process investments until efforts to synthesize penicillin in the laboratory had ceased, but failure to lower costs during the early years of the industry would have been competitively catastrophic given the sharp reductions in prices that occurred. A second reason for the early commitment to process innovation is that, in contrast to the dominant design theory, major product innovations often had limited ramifications for the production process and thus did not render process investments obsolete. Cord tires, for example, contributed to new methods to construct the plies of the tire, but the rest of the steps in tire construction do not appear to have been greatly affected. Color television resulted in many more parts and may have initially slowed efforts to automate the production process, but it does not seem to have fundamentally altered the nature of the production process for TV sets. Even the synthesis of penicillin in the laboratory did not ultimately undermine the use of fermentation methods in the production of penicillin, as was feared during the early years of the industry.

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