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Innovation Adoption and the Product Life Cycle

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Innovation Adoption and the Product Life Cycle INNOVATION ADOPTION AND THE PRODUCT LIFE CYCLE Charlie Karlsson Umeå Economic Studies No. 185 UNIVERSITY OF UMEÅ 1988 INNOVATION ADOPTION AND THE PRODUCT LIFE CYCLE Charlie Karlsson AKADEMISK AVHANDLING som för avläggande av ekonomie doktorsexamen vid samhällsvetenskapliga fakulteten vid Umeå universitet framlägges till offentlig granskning torsdagen den 6 oktober 1988 kl 13.00 i hörsal C, samhällsvetarhuset. INNOVATION ADOPTION AND THE PRODUCT LIFE CYCLE Charlie Karlsson Umeå Economic Studies No. 185 UNIVERSITY OF UMEÅ 1988 *The research that is reported here and which is the result of a co-operation between the Regional Science Research Unit at the University of Karlstad and CERUM has been supported financially chiefly by The Bank of Sweden Tercentenary Foundation (Grant Dnr 84/266). Author and title Karlsson, Charlie (1988). Innovation Adoption and the Product Life Cycle. Umeå Economic Studies No. 185, 232 pages. Abstract The objective of the study is to present a number of hypotheses concerning (i) the adoption of innovations for product and process development within enterprises (establishments), (ii) the spatial diffusion of innovations, and (iii) the adoption of applications of information technology to automate the production processes within enterprises (establishments), and to test these hypotheses empirically by means of econometric methods, using a data base containing primary data from several regions in Sweden on the adoption of different applications of information technology at the establishment level. The study has two main parts; the theoretical foundation and the empirical results. In the theoretical part of the study product and process development by means of new innovations is discussed within the general framework provided by the product life cycle theory. A short survey of some important theories of innovation diffusion is presented. A conceptual framework for the analysis of the adoption of innovations for product and process development at the establishment level is also presented. Based upon the "traditional" theory of production two main aspects of the choice of technique are studied, namely, (i) choice of technique within the traditional neo-classical framework, and (ii) choice of technique within a vintage model framework. The vintage model and the product life cycle theory are then used as a basis for analyses of product and process development. The study also contains an overview of those characteristics of enterprises that, in the literature, have been associated with an early adoption of innovations. The results from earlier empirical studies are also surveyed. The empirical part of the study contains: (i) an analysis of the establishment characteristics associated with an early adoption of applications of information technology in administration, in production processes and in products in the engineering industry in two peripheral regions in Sweden, (ii) comparisons of the influence of different establishment characteristics on product development in two industries - the machinery industry and the electrical equipment and instruments industries - in one central and one peripheral region, (iii) a study of the spatial diffusion of applications of information technology in Sweden based upon a categorization of the different applications on two dimensions: standardization/ non-standardization and low/high complexity, and (iv) a study of how different applications of information technology might be used to achieve different levels of automation. The empirical results indicate that the skill profiles and network characteristics of the establishments are important for an early adoption of applications of information technology for product and process development Applications associated with non-standardized production and with high or medium complexity seems to be characterized by a hierarchical diffusion pattem. Keywords automation, engineering industry, information networks, information technology, innovation adoption, innovation diffusion, process development, product development, product life cycle theory, regional, skills, spatial, vintage models. Distribution and author's address Department of Economics, University of Umeå, S-901 87 Umeå, Sweden. Department of Economics, University of Karlstad, Box 9501, S-650 09 Karlstad, Sweden. ISSN: 0348-1018 Place of publication: Umeå ISBN: 91-7174-372-3 Year of publication: 1988 ACKNOWLEDGEMENTS In the course of my work I have incurred a number of obligations. First and foremost I should like to thank my supervisor, Professor Börje Johansson, for his careful and perceptive reading of my work, for his bracing comments and for his patience with my vagaries. I have also had the privilege of receiving encouragement and valuable comments and suggestions during different stages of my work from Professor Åke E. Andersson. I also wish to thank a number of other persons for their support. In particular, Professor Lennart Hjalmarsson and Dr Birgitta Juås have given me penetrating comments on this thesis. Dr Bengt Mattsson has read the whole thesis. I have also had the benefit of valuable comments and suggestions on parts of the thesis from Dr Ingemar Adolfsson, Professor Roland Artie, Dr David Batten, Dr Lennart Flood, Mr Bengt Gustavsson, Professor Anders Klevmarken, Mr Jan Larsson, Mr Thomas Martinsson, Dr Nils-Olov Stålhammar, Professor Sören Wibe, and Mr Lars Westin. I am also grateful to Dr Christer Anderstig for his valuable comments and suggestions and also for his direct cooperation in part of this thesis. I have also received valuable assistance from my research assistant Mr Jan Larsson, who has been responsible for the survey that provides the empirical basis and who has conducted part of the statistical analyses presented here. Dr Michael Cooper has given me invaluable help in correcting my English and excellent stylistic advice. I am also deeply grateful to Ms Ingrid Lindqvist for her enthusiastic spirit, the care and speed with which she has typed out Chapters 1, 6 and 7, and her design and control of the layout of the thesis. The staff of the University library in Karlstad have provided me with an outstanding service for which I am very grateful. I would also like to thank my colleagues in the department of Economics at the University of Karlstad - Mr Lars-Gustaf Bjurklo, Dr Birgitta Juås, Dr Bengt Mattsson, Mr Bengt Nordlund and Mr Sture Thompson - for taking full responsibility for all teaching in economics, while I was writing my thesis. I also want to thank my wife, Eva, and my children, Ulrika, Martin, Johan, and Linda, for their loyalty and for enduring a husband and a father who apparently has shown greater interest in his Macintosh and his manuscripts than in his family. Lastly, but not least, I want to thank my parents, Emmy and Sven, for realizing that a small-scale farm with stony fields and pasture could provide no future and for giving me the opportunity to go to high school in spite of the family's very limited economic resources. Karlstad, June 1988 Charlie Karlsson CONTENTS Page 1. INTRODUCTION 1 1.1 A General Background 1 1.2 The Purpose of the Study 6 1.3 The Outline of the Study 7 2. PRODUCT LIFE CYCLES, INNOVATION DIFFUSION AND INNOVATION ADOPTION: A LITERATURE SURVEY 9 2.1 Introduction 9 2.2 Product and Process Development in a Product Life Cycle Framework 10 2.2.1 Product Development in a Product Life Cycle Framework 11 2.2.1 Process Development in a Product Life Cycle Framework 13 2.2.3 Summary 15 2.3 The Diffusion of Innovations 15 2.3.1 Learning Models of Innovation Diffusion 17 2.3.2 Models of Innovation Diffusion Relying on Differences between Enterprises 22 2.3.3 Integration of the Supply Side in Models of Innovation Diffusion 24 2.3.4 Innovation Diffusion: A Summary 25 2.4 The Spatial Diffusion of Innovations 26 2.5 A Conceptual Framework 32 2.5.1 The Adoption Process 33 2.5.2 A Conceptual Framework for Analyzing Product and Process Development 34 2.5.3 The Role of Suppliers of Machines, Components and Software in the Adoption of New Techniques 35 2.5.4 Information Networks and the Adoption of New Techniques 37 2.5.5 Human Skills and the Adoption of New Techniques 39 2.6 Principal Conclusions 40 3. THE CHOICE OF TECHNIQUE: SOME STANDARD APPROACHES 43 3.1 Introduction 43 3.1.1 Basic Concepts 43 3.1.2 A Production Function Approach 44 3.1.3 The Plan of the Chapter 46 3.2 Choice of Technique: The Neo-classical Model 46 3.2.1 The Neo-classical Approach to the Choice of Technique 46 3.2.2 Limitations of the Neo-classical Approach 51 3.3 Choice of Technique: The Vintage Model 51 3.3.1 Adoption of New Techniques at the Micro Level 52 3.3.2 The Case with Ex Ante Substitutability and Ex Post Non­ substitutability 54 3.3.3 Embodied versus Disembodied Technological Changes 56 3.3.4 The Vintage Model 57 3.3.5 Salter's Basic Model 59 3.3.6 The Choice of Technique in a Vintage Framework 60 3.3.7 On Economic Efficiency 63 3.4 Summing-up and the Way Ahead 67 4. THE CHOICE OF TECHNIQUE: A PRODUCT LIFE CYCLE APPROACH 69 4.1 Introduction 69 4.2 The Product Life Cycle: Product vs Process Development 71 4.2.1 The Adoption of New Techniques in Process Development 72 4.2.2 The Adoption of New Techniques in Product Development 73 4.3 Skill Profiles in the Different Phases of the Product Life Cycle 74 4.3.1 Skills, Learning and New Techniques: The Basic Model 75 4.3.2 The Scrapping Age for a Given Vintage 77 4.3.3 Skill Intensity and Scrapping Age 79 4.3.4 Product Vintages and Product Development 82 4.4 Networks in the Different Phases of the Product Life Cycle 85 4.4.1 Skill-intensity, Networks and Information Lags 86 4.4.2 Network Properties and Production Information 87 4.5 Spatial Conditions for the Different Phases of the Product Life Cycle 88 4.6 Principal Conclusions 91 5.
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