Jobs, Growth, and S&T Policy

Canadian government and post-secondary research costs $14 billion, providing over 4% of world scientific research, but earning us less than 2% of global GDP. This gap stems from S&T policy’s failure to appreciate what technology is and how it drives 80% of GDP. Policy treats science as the capital and technology as just the interest. Yet tradesmen created and refined steam engines for 125 years before thermodynamics finally explained why they worked. Bicycle makers built the first aircraft and a Harvard drop-out created the software industry. Nanoscience is uncharted, yet nanotechnology is already a global industry.

Science is an endless quest to know why: “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.” – Steven Weinberg (Nobel Laureate in Physics). Technology is the practical effort to know how: “Anything that won’t sell, I don’t want to invent.” – Thomas Edison.

Technology applies know-how to add value to our lives. It creates new industries, like computers and aviation, whose products rewrite practices in old ones like banking, travel and entertainment – a process captured by the value chain.

Scientific research is only an input. Technology transforms multiple inputs into products and services that continually change life and work. Schumpeter called it “creative destruction.” But it is an uphill path for new products, since old ones are ensconced in the protective embrace of the status quo.

However, old gives way to new in a well-worn cultural transition that unfolds 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 one 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 confront new users – increasingly more reluctant to abandon familiar ways. For example, automobiles took over three human generations to fully penetrate markets. Over that time, growth cooled from double-digits in Introduction to just one percent in Maturity. This recurring path of new product adoption is shaped by value from three interacting forces: product (value proposition); its underlying technology (technology system); and the industrial supply chain that creates, produces, operates and supports products. Each unfolds in highly consistent patterns driven by culture.

The value proposition lies in the eye of the beholder: it is the sum of four benefits:

• Functionality wins a toehold with innovative users. However, new products must soon offer more.
• Price must decrease to escape niche markets. Modern products which have (so far) failed include biofuels, manned space flight, electric vehicles, and fuel cells.
• Compatibility requires products to ‘fit’ society as it is. For example, early cars had high ground clearance and commonly carried two spare tires to survive rudimentary roads.
• Ease-of-use must increase as products become commonplace. Early PCs were sold as hobby kits; today, they are plug & play.

The value proposition evolves as culture ‘trades-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, in Transition, wants begin to surpass needs – but Henry Ford, believing his Model-T was everything drivers could ever want, doubled down on engineering to make them cheaper. GM surpassed him with style, annual model changes and consumer credit.

The technology system delivers the value proposition. It is a ‘layer cake’ of five basic parts, e.g., the familiar PC. Its first layer is the major device: the central processing unit (CPU). Early PCs lacked supporting systems that make computers easier to use (mouse, monitor) or assist the major device do its job (high-level software). The third layer of the cake is components and materials, e.g., transistors and circuitry. Such ‘nuts and bolts’ enable continual system improvements. Design is the ‘yeast’ that raises product performance: ideas, rules and practices, including the norms and standards that facilitate integrating all the parts. Infrastructure is the ‘icing on the cake,’ external (yet highly relevant) factors like wireless networks and the Internet that add to product value.

Design evolves a series of paradigms, each remaking the cake to improve value proposition. For example, speed was long a primary performance objective for fighter aircraft. Each design paradigm opened a new era of product competition – each longer than the one before it. The era of 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 interacting layers of the cake. Industrial supply chains grow more complex as well.

The industrial supply chain is the extensive network of organizations that realize technology’s potential. For example, Boeing depends on 6,450 suppliers in over 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.

Supply chains evolve in two ways. They decouple into specialized stages; each develops supporting activities – disproportionately increasing the efficiency and effectiveness of the direct activities that get products out the door. An example is the meat industry, where cattle ranchers use bovine genetics to control animal traits like growth rate and marbling. Packing houses are highly automated: wireless captures and integrates real-time data from the slaughterhouse floor to the warehouse. There, software speeds order-picking and optimizes use of dock facilities. At retail, Intel and SAP combined forces to track and process real-time sales and inventory data generated by RFID tags and the electronic product code.

But supply chain evolution is a double-edged sword. Aerospace has decoupled into airframe, avionics and propulsion, all with sub-categories and 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, 40 different U.S. fighter designs flew, produced by nine different firms. Now, there are only three: Boeing, Lockheed-Martin and Northrup Grumman. One production jet remains, the F-35. In the tight circles of industry, established practices, thinking and relationships become entrenched.

In Conclusion

New products’ 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. These interwoven factors are choreographed by the rate at which culture’s patterns of living and working can adapt to technology’s new possibilities.

Our many industrial sectors are found all along the familiar path of market penetration: that path is long, and misalignments among the three 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.