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Innovation and Commercialization of Emerging Technology Innovation and Commercialization nnovation does not necessarily proceed lin- turing existing product lines. Government poli- early from basic scientific research to prod- cies to facilitate innovation and commercialization uct development; it is an iterative process of can be more effective if they recognize the varying both matching market needs to technological conditions leading to success in different indus- capabilities and conducting research to fill gaps in tries and address the many barriers firms face in all knowledge, whether during product conception, stages of innovation, from emergence to maturity. product design, manufacturing, marketing, or oth- er phases of the innovation process. Commercial THE PROCESS OF INNOVATION success depends as much on the ability of firms to Technological innovation is the act of developing establish and protect a proprietary advantage in and putting to use new products and processes. It the marketplace as it does on their ability to gener- demands novelty in either the product/process/ ate new scientific and technical advances. service, the application, or both. Innovation there- The process of innovation varies dramatically fore includes not only the development of entirely across industries and product lines. In some indus- new products, processes, and services that create tries, like pharmaceuticals, innovation depends new applications, but also the development of heavily on scientific breakthroughs; in others, like new products, processes, and services for use in electronics, it derives more from product and existing applications (e.g., integrated circuits re- process design. In addition, innovation takes on placing vacuum tubes in electronic applications), different characteristics throughout product and or the use of an existing product, process, or ser- industry life cycles. Nascent industries exhibit vice in a new application (e.g., manufacturers of high levels of product innovation as firms attempt flat panel displays adapted semiconductor to settle on the primary characteristics and archi- manufacturing equipment to their needs). Innova- tectures of their new offerings; later phases are tion is more than just invention, which is the act of characterized more by process innovation, as devising new products, processes, and services firms attempt to improve their means of manufac- that are not obvious to someone skilled in the field 32 | Innovation and Commercialization of Emerging Technology and that represent clear departures from prior art.1 manufacturers work closely with users to define Innovation requires that inventions be reduced to product specifications and costs. practice; that new products, processes, and ser- As these limited examples suggest, innovators vices be designed, manufactured, and adopted by face different obstacles in developing and market- users. Many inventions are never put into prac- ing new products, processes, and services, and tice—some because they cannot meet users’ cost must proceed through a different set of steps to and performance requirements, others because successfully bring a new invention to market. Not they are technologically infeasible. only do differences in industry structure and the No single model accurately depicts the process nature of markets impose different constraints on of innovation; innovation occurs differently in the innovation process, but science, technology, different industries and product lines as firms at- and innovation are linked in different ways in dif- tempt to develop products and processes that meet ferent industries. These observations suggest that market needs. In the pharmaceutical industry, for innovators follow many different pathways example, innovation is closely coupled to scientif- through the innovation process, and that attempts ic discoveries and follows a fairly linear pathway to facilitate innovation and the commercialization through manufacturing and marketing, although of emerging technologies must take different firms often begin constructing manufacturing fa- forms. cilities while the drug is undergoing clinical trials. Few other obstacles impede the innovation proc- ❚ The Linear Model ess in pharmaceuticals: new products can often be Public policymaking regarding innovation has protected from imitation by strong patent protec- long been based on the linear model of innovation. tion, markets are quite easily identified and quan- In its simplest form, this model postulates that in- tified, and third-party payment systems (i.e., novation begins with new scientific research, pro- insurance companies and Health Maintenance Or- ceeds sequentially through stages of product ganizations (HMOs)) relax some of the cost development, production, and marketing, and ter- 2 constraints on new products. In contrast, innova- minates with the successful sale of new products, tion in the semiconductor industry derives more processes, and services (see figure 2-1). As such, from new product design and improvements in the linear model implies that the way to maintain manufacturing technology than from advances in leadership in markets for high-technology goods basic science; product life cycles tend to be short is to maintain leadership in basic scientific re- (not longer than 3 years in most cases) and con- search. Though the model recognizes that devel- sumers are highly sensitive to cost, making com- opment, production, and marketing activities lie mercial success more uncertain. In the between research and product sales, it views these commercial aircraft industry, innovation is highly processes more as part of the innovation pipeline centralized in a few producers who act as integra- than as major obstacles to commercial success. tors of components from a broad range of suppli- The linear model gained considerable support ers, product cycles are several decades long, and after World War II, in part because it explained the 1 In order to be considered for a patent, new products, processes, and services must be both novel and nonobvious to someone experienced in the field. Many inventions are never patented, either because of the time and effort required to acquire a patent, or because inventors do not wish to publicly disclose the operation of their new product or process. 2 Recent changes in the health care industry, including the rapid growth of health maintenance organizations (HMOs) and the frequent merg- ers between hospitals and medical practices, are altering the process of innovation in medical technology by placing a greater premium on cost- effective treatments and diagnostics. See Gerald D. Laubach and Annetine C. Gelijns, “Medical Innovation at the Crossroads,” Issues in Science and Technology, spring 1995, pp. 33-40. Chapter 2 Innovation and Commercialization 33 Research ------> Development SOURCE: Office of Technology Assessment 1995 genesis of important new military capabilities. support long-term fundamental research. He be- The atomic bomb derived almost directly from lieved, however, that further development and ap- fundamental research in elementary physics; ra- plication of new technologies was the sole dar derived from research into microwave radi- province of industry, which was better suited to in- ation. The Department of Defense (DOD) further terpreting market needs and identifying lucrative embedded the linear model into federal policy- investments. making by instituting accounting categories for research and development (R&D) that corre- Effects on Policy sponded to individual cells in the linear model. In Government policy toward commercial innova- its current form (revised slightly in FY 1995), the tion has followed the linear model to a large DOD model breaks the innovation process (re- degree. Support provided specifically for com- ferred to as research, development, test, and eval- mercial innovation has traditionally been limited uation, or RDT&E) into seven stages. numbered to funding of basic scientific research. Institutions 6.1 through 6.7 (see box 2-1 ). Projects move se- such as the National Science Foundation (NSF) quentially through the categories, from basic re- and the National Institutes of Health (NIH) pro- search through development and manufacturing, vide support for basic research, much of it con- as the technology matures and is applied to new ducted in U.S. universities. Other policies attempt military systems. Because DOD funding domi- to create an environment conducive to innovation nated federal R&D expenditures throughout the through legal mechanisms such as tax codes, pat- ent law, and antitrust regulations. Such tools tend postwar period and drove much of the U.S. re- to operate on an economy-wide level, making no search agenda, these categories permeated the distinctions between industries, though the effects thinking about innovation in the United States. often vary considerably across different indus- The linear model was further legitimated by tries. For example, changes in the tax code to al- Vannevar Bush, science advisor to Franklin Roos- low faster depreciation of capital equipment evelt, whose treatise, Science, The Endless Fron- would likely have a greater effect on the semicon- tier, became the template for postwar technology ductor industry than on pharmaceuticals because policy in the United States. This document stated of the high cost of semiconductor manufacturing that funding of basic research would fuel develop- equipment and the large contribution capital ex- ment of technologies that could help advance penditures make to
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