OEWEY, HD28 .M414 90 ALFRED P. WORKING PAPER SLOAN SCHOOL OF MANAGEMENT Technological Discontinuities of Fiber Optics The Emergence John S. McCormack James M. Utterback AVP # 3199-90-BPS August 1990 MASSACHUSETTS INSTITUTE OF TECHNOLOGY 50 MEMORIAL DRIVE CAMBRIDGE, MASSACHUSETTS 02139 Technological Discontinuities of Fiber Optics The Emergence John S. McConnack James M. Utterback ^\T # 3199-90-BrS August 1990 Presented at a conference on "Competitive Strategies in the Telecommunications Industry", Center for Telecommunications Management, School of Business Administration, University of Southern California, Los Angeles, California, October 5-7, 1989. m^ ABSTRACT Prior descriptions of technological discontinuities Kim and by Tushman and Moore are sphere situation often is can be perceived The purpose participants. structure. play in Clearly, the In reality, the much more complex, and the emerging technology in many different ways by different industry of this as a technological discontinuity to restricted in their competitive a single attacker and a single defender. to by Utterback and way in paper is to examine optical fibers an industry which has a complex competitive strategy has had an important role in technological change. which industry participants have mastered Technological discontinuities are frequently discussed business strategy with reference of literature defender - to the in an attacker and a two companies separated by a technological "divide". In order to attempt a more comprehensive analysis of the strategies of discontinuous pursued by competitors during a period technological change in an industry, we decided to explore the product and process development decisions and actions of a number of competitors, as well as their technological resources and market positions detail. in technological As an discontinuity on copper cable in we chose illustration which accompanied to explore the the telecommunications markets States. The certainly not restricted to just a single attacker fiber optics discontinuity assault optics' fiber in the United meets our needs, as it is and defender. It is a timely and current case, and one of the present authors (McCormack) has been fiber optics intimately involved in Hence technology for the past decade. examine perceptions of the development of work this the optical fiber-copper cable discontinuity from the perspectives of five different industry participants on both sides of the divide market positions will located and having widely varying resources and . The second author (Utterback) joined in he had recently surveyed a wide variety this of collaboration, because case studies and industry studies seeking to understand corporations' responses to technological discontinuities of general terms and to develop a set hypotheses or model (Utterback and Kim, 1986). prescriptive character for the studies add is used to advantage management of technology and show that present definitions simplistic. will in to It is hoped in This model's highlighting issues the results of the case of "discontinuities" are too that the "richer perspective" obtained here the ongoing work on technological evolution and industry discontinuities. In a recent book espousing the "attacker's advantage" Foster clearly explains how dogged persistence technology can become a liability in investing in when a new, an established totally different technology appears the scene. in a given industry the In technology can follow a performance curve similar old technology, but of the its starting "performance parameter" scale and point its new shape in to that be higher up the will "natural will limit" consequently be higher than that of the existing technology (Foster, 1986). compare important to is It between functions discontinuities that Foster doesn't bring out He defenders. examples and curves. fails to independently progress, technological of a fact on attackers and his treatise in when discussing with like define the unit of analysis his limits many in of his discussion to unidimensional progress many dimensions reality the In like of technology progress a highly complex manner. in Cooper and Schendel's (1976) elegant and pathbreaking comparative case studies have shown that a new product technology is more likely to be introduced by an outsider, rather than a traditional competitor, and the aggressor is often a small "start up" venture. However, a new process technology expected Nolet, to emerge from 1989). and provide clear advantages company must reconsider to quickly would be traditional competitors (Utterback and Given that the new technology has the potential substitute for the old the established for the old product embrace a prominent position large investments is placed strategy. its in radical in is to the end user, a disadvantaged position and difficult for a large organization new technology and maintain its many reasons, among them the market for place in It to in technical knowledge, designs, people new requirements. vacuum tube producers when the transistor emerged in the 1950's. Companies wishing to successfully make the transition from the old to the new and equipment that may Witness the demise not be adaptable to the of the leading technologies must carefully organize themselves balanced order to change manage technologies. in strategy, culture the discontinuity and structure between the old to facilitate of the a company and new in It can take a decade or more technologies and hence it is to complete the switch from old engage often too late to to new a new in technology when the signs become clear that the existing technology is A decline. in successful long before the decline in new technology must the shift to the old technology has set begin Forecasting in. the beginning of a decline by carefully reading the signs available the earlier stages of the technology lifecycle is essential new correctly time the transition from the old to the in in order to technologies. Utterback and Brown discuss such environmental monitoring using the example based photographic business and of the silver chemistry on the traditional competition point out that focusing is Relevant information must be gathered from potential insufficient. entrants outside the established industry such as electronics and and Brown, 1972, television (Utterback or p. 5). A change in technology market conditions often allows companies from outside a group particular strategic lower the mobility barriers and seek to entrance. Conversely, the old technology usually to the improve at aggressor. in to research and development This write old technology reluctant to to improve, and the traditional competitors is in plant Retrenchment off. may make embrace in order to increased fight off the be expected because the established companies to have had significant investment difficult continue a dramatically faster rate, after the introduction of new technology, because investment will the and equipment which of the established competitors new - to is rate of progress of the all the An cross the divide. more interesting point emerging from Cooper and Schendel's (1976) study was most of that the traditional companies divided their resources and invested Jn both the old and the strategy which was competitive position largely in the new technologies. unsuccessful in It is this divided producing a strong new technology. Utterback and Kim (1986) contend that discontinuities technologies frequently occur. In in order to be a significant threat an invading technology must obviously be potentially superior along at least one performance dimension even though inferior to in its measurement without reference of new, or of the its will often to traditional improving the cost/performance criterion. innovations invading stable businesses, in - terms of an earlier model evolutionary technological change (Utterback and Abernathy, 1975) by postulating four different patterns of discontinuous The hypothesised patterns are based on the varying degree change. to is It unique dimensions Utterback and Kim discuss the process of radical innovation of start emphasize the differences will performance between the old and the new along dimensions start off being unique characteristics are crucial. established companies here that the in The invader the established technology. a small market where may it which production process and/or market linkages are disrupted by These same patterns of change have been Tushman and Anderson who describe them in terms of a particular innovation. reinforced by whether they are competence-destroying or competence-enhancing for the industry participants (Tushman and Anderson, 1986, Following a discontinuity these authors uncertainty and munificence increase. Each below, and we be placed Product in (ability of Utterback's will and Kim's patterns Process in will both be described Discontinuitie.c^ when new firms entering the business introduce a product with very different properties one that replicate the initially will this typology. from the existing ones. existing predict that industry support growth) discuss where the emergence of fiber optics can This pattern of discontinuity occurs existing to p.439). The new product traditional new product is so unrelated to the firms cannot use existing new process since a is processes required. to Although crude and expensive, the new product's higher performance at least one dimension enable it to enter niche markets. As the dominant design (Abernathy, 1978) for the new product emerges, it introduces both major product and process changes compared to the product which existing being changed incrementally is improve to productivity. An example of product-process discontinuity vacuum tubes by is the displacement of Although crude when transistors. first introduced by Bell Labs (who did not manufacture vacuum tubes) they had potential advantages after their discovery with transistors of size and energy led the to significantly efficiency. emergence of thin Major changes film improved temperature A and bandwidth characteristics. effect field noise stability, similar story could be told of the emergence of electronic calculators, introduced in 1962 by companies such as Sumlock and Sharp, who were not manufacturers of Rapid progress produced electromechanical calculators. cheap machines which completely displaced their reliable, electromechanical competitors. In both of these areas the pattern of technological change by an industry outsider and product and process change initiated from the "specific" state of the traditional product shifted "fluid" was state of the new product (Abernathy and to the Utterback, 1980). In these examples Tushman and Anderson would term the creation of a new product class or a substitute for an existing product as being a competence destroying product discontinuity. Such a discontinuity will favor new entrants who possess the knowledge and skills that established producers do not have. Product A product Di?;continiiitiP5^ when a new discontinuity occurs participant introduces a industry higher performance product which basically similar to the existing is one, but which exploits changing Because the new and market opportunities. or existing old products are not widely dissimilar established firms can use their existing process know how The to replicate the process innovations occurring in is new product. rate of change in therefore expected to be less than those the product. Rapid price reduction of the new product increases and the A price/performance its latter is ratio above the far eventually displaced. classic example of product discontinuity model T by the model A automobile invested heavily in plant is the substitution of the and equipment automobile Ford met GM technology enabled in 1923 in this new offering to mass produce to introduce of its Ford used A. its is its operations, retooling to introduce the experience as a car manufacturer emergence the T an enclosed 1927 by closing in Another example existing production knowledge. discontinuity the model million units. higher performance at a higher price. competition making 60,000 workers redundant and model Ford at Ford in the late 1920's. and between 1908 and 1927 produced over ten Changes product existing of use much to a product of integrated circuits which replaced a product containing a large number of discrete transistors. Experience gained in the production of transistors could be transferred to the production Tushman and Anderson integrated of circuits. (1986) would term these events competence enhancing product discontinuities, and because existing production "know-how" may be Process is transferable to the essentially the process stiff in same product when an established firms response to cost competition. material shortages, basic oxygen process in continuous casting steel mill in government regulations Non-assembled products such as Examples are the displacement of company produces new or improved established but by a radically chemicals or steel often exhibit primary product, Discontinuities This pattern of change occurs or new an advantageous position. in steel of the open hearth furnace by the making and the introduction which is of presently displacing the Such examples of process competence destroying by Tushman and the steel industry. substitution would be termed this glass, pattern. Anderson and they would expect outsiders albiet industry, market share, not necessarily the dominant firms be most will likely (Utterback and Nolet, 1989). essentially remains (1980) terms in new While the product state, "fluid" in the in of process discontinuities in these examples the "specific" state the process in from "specific" to a initiate to We to enter the industry. hypothesize, quite to the the contrary, that existing firms moved is Abernathy and Utterback's terms. Process Product discontinuities This change results from a radical process innovation which, although it produces the same physical product, completely changes the products' strategic market position example of such events the on-site is and new uses emerge. An production of liquid oxygen which replaced bulk delivery and opened up new markets by removing existing entry barriers to other business segments. say whether Tushman and Anderson would term change competence destroying or It this difficult is to pattern of competence enhancing. It could be either. The Sample We will of Firms be Studied to be concerned here only with the manufacturers communications grade optical whose major market fibers has been telecommunication systems. industry prior to analysis is to follow take_each_ participant and look at development ratio, level of its of One method Porter's of to (1985) approach and market share, research and integration, customers and other important factors and produce a series of "strategic groups". emergence of fiber optics could then changing mobility within the groups. date segmenting the be discussed as a factor Because we wish The in to concentrate on managing the emergence of optical fibers as a technological discontinuity which "forms" groups, segment the participants into five groups of we have chosen different historical to perspectives according to the background of the respect to telecommunications. Outsiders 1. for - These groups Companies not involved company with are: in telecommunications example Corning, Dupont. 2. Telecommunication Companies 3. Copper cable manufacturers example AT&T, GTE. for for example Mohawk Wire and Cable, Times Wire and Cable, Simplex Wire and Cable, General Cable Corp, Belden. Traditional 4. illumination fiber American Optical Corp, New 5. Two companies one from each extremely important roles for example Galileo. example SpecTran, Fibronics, Valtec. start-ups for - manufacturers in the of the first two groups - have played emergence and subsequent commercialization of optical fibers world wide. Corning Glass Works and AT&T are the subjects of the first two case studies of technological change (in McCormack, 1987). One company from each of the other three groups were chosen for further discussion and the emergence of optical fibers at Times Wire and Cable, Galileo and SpecTran form three In terms fibers of case studies (in McCormack, 1987). a typology of technological discontinuities, optical would be described by both Utterback and Kim and by Tushman and Anderson as a radical The closest category that further of in change which the Utterback is competence destroying. and Kim framework would be product-process discontinuity, because the product was introduced by an industry outsider. Corning, and existing processes for the manufacture of copper conductors could not be used production of silica based fibers. for the The Discontinuity Optical Fibers: Figure 1 Performance The of Coaxial fiber first and Fiber Optic Systems systems were expensive and performance was their system as shown less than the best available coaxial in Figure 1. This figure represents information on a series of optical fiber communications systems taken from the literature and trade press Major product and process changes have stimulated the emergence of a dominant product in the form of doped silica fibers. The competence destroying nature of the discontinuity lowered entry barriers and allowed new firms such as Corning, Galileo and SpecTran to enter previously impenetrable telecommunications of the time. markets. There is little doubt that copper cable manufacturers perceived a strong product-process discontinuity with the emergence of optical fibers. Some, such as Simplex Wire and Cable and General Cable, used their others, like cabling expertise to cable bought-in optical fiber while Times Fiber Communications and Mohawk Wire and Cable, attempted to manufacture optical fibers but failed. case of 1987) was Times Fiber Communications, (described was it In the McCormack, competence destroying discontinuity company's senior management, and their acquire the technology by merging with an existing highly visible to the strategy was fiber optics large clear that this in to company. Although Times Fiber Communications spent amounts on research and development, they were unable emerge as reasons strong contenders in the fiber optic market for the and development, an and "specific" copper industry of lack of focus in research incompatibility in the "fluid" fiber cultures and late development of the market for optical cable television systems. to 10 Although the telecommunications market was new optical be considered a direct outgrowth fibers could begun by Hide the 1940's (as noted in Corning, to vapor phase deposition series of incremental of silica optical changes of the McCormack, 1987). in was a major step fibers in a To a large Corning Glass Works. at work The competence destroying discontinuity, and in terms of the Utterback and Kim framework, The fact Corning best fits the product-discontinuity description. that vapor-phase technology could be transferred from earlier work extent, Corning did not perceive a major at Corning Glass Works means that the discontinuity could be described as competence-enhancing. observation that Corning holds silica glass optical fibers. This fact of the all To lessen the impact embraced its tried of this and tested strategy partners and starting joint ventures. has an important At AT&T, play role to in major patents to for research and development low loss fiber despondency. in at Bell the telecommunications of obtaining development Clearly competitive strategy sown in long 1960, and competence of the truly massive scale of Labs, Coming's announcement of 1970 caused excitement No-one thought the the progression from copper wires in Because optical fiber systems. in market discontinuity. Corning the seeds of optical communications had been enhancing changes can be seen doped be to mastering technological changes. before the introduction of the laser to borne out by the The discontinuity was seen market since Corning was an outsider market. is at AT&T but certainly not an outsider could usurp the that technological lead of the monopolistic Bell Empire. In order to climb the "vapor phase technology curve", Bell Labs transferred knowledge from its work in semiconductor fabrication fiber optic fabrication processes. Chemical Vapor Deposition was the enhancing discoveries. itself to its The emergence result of research into of Modified a series of competence Although the production of the glass fiber could be considered more of a discontinuity than events which occurred at Corning, the product, communications fiber was not, because the waveguide transmission properties of the resultant fibers were largely understood by Bell Labs as a result of previous 11 theoretical work. Therefore, although a discontinuity did occur, the technical strength of AT&T smoothed over any shock system to the and AT&T, with some help from the Federal Communications Commission, emerged a strong contender in communication optical systems. At Galileo, which was an established producer of medium-high loss Ray Tube face plates, the discontinuity appears to have occurred more in its market instead of in its technology. It licensed compound glass technologies for fiber fabrication, and was also producing fibers by vapor phase deposition techniques (Porter, 1983). The move to telecommunications applications should have been complete when glass optical fibers for illumination and Cathode and Cable business Galileo acquired the Wire Corporation of America September in of the of 1977. Revere At this point, Galileo could produce fiber (by several different techniques), fiber cable, sources, detectors and auxiliary equipment. suggest that Galileo, regard too-thin" with to even though they had avenues in all all fronts, Little At a time of rapid who players information phase technology used by Galite to is intended new fabrication In technologies and fibers or any event, Wire. When Galite, Pirelli, Their the fiber manufacturing part of Galileo, three employees from Galileo new focus was manufacture clear. of fibers. competence-destroying because it left its this new markets was never pursued by Galileo and they sold the fiber optics Pirelli to available on the vapor produce optical position with respect to the Corning patents. of many staff aspects of optical communications needed considerable resources. combination to because effort, research and development technological developments on keep ahead tempting is research and development fifty work were being investigated. of It Times Fiber Communications, was "spread- like activity to was sold to and started SpecTran. They would concentrate on the SpecTran's existence was based on the nature of the fiber optics transition, allowed SpecTran to enter a telecommunications market 12 which had been the sole preserve The entry equipment producers. of "metal" and barriers being erected by Corning Bell Labs were maintained when SpecTran licensed both Corning and Bell labs technology manufacturing processes (SpecTran, 1986). for their SpecTran's unique strategic move was to become a specialty supplier of fiber producing a range of fibers which transmit from the ultra violet to the infra red. with this strategy (sales SpecTran appeared to be doing (SpecTran, 1984)) although to concentrate on a niche market considered A to well 1983 were $1.7m; 1984 were $6.4m is be a weak strategy (Abernathy and Clark, 1985, p. 3). "Richer" Model nf Discontinuitip.g By looking fiber in at the five detail manufacturers case studies of potential optical was demonstrated above that each did not perceive the same type of of it industry participants these Using the Utterback and Kim typologies. Corning, the discontinuity. industry outsider went through what was primarily a "product Although novel, the process technology could be discontinuity." considered as an outgrowth of previous work. Its uniquely strong A combination patent position supports this proposition. of strong research and development, patents, careful marketing and planning enabled Corning to produce a highly successful innovation in fiber optics. AT&T perceived more of a "process discontinuity" with the emergence of fiber optics conversant with because, although vapor phase technology hand the product, doped discontinuity optical because fibers transmission. Bell and had Labs was semiconductor for made before was conceived. On the other manufacture, significant advances needed modified chemical vapor deposition Bell to silica fiber optics, be was less of a Labs already produced compound glass significant expertise in waveguide 13 Because Galileo was not when it entered it In the telecommunications business and compound glass manufacturing doped silica optical fibers was seen as concentrated techniques, the emergence of in a product-process discontinuity with the market, rather than the product, being more unfamiliar than the process technology. The only company to suffer a major product-process discontinuity was Times Wire and Cable who were unfamiliar with optical waveguides and had no expertise at all in their method of manufacture. acquire the Although the company made a determined effort new technology, they were confronted by a slowly developing market fiber for research and development "cultures" and a lack of optics effort, cable television, diluted in incompatibility of fiber perseverance SpecTran entered the business as a top in recent slowing long haul by limiting down itself result of the discontinuity to it call and a "weak a niche market. With the of optical fiber sales telecommunications and copper management. developed what Abernathy and Utterback (1980) would strategic position" to in risks clearly the primary market of direct competition from the two larger volume, lower cost producers. Figure 2 Positions of Significant Events in the Development of Optical Fibers Conclusions The conclusion of the company defending above discussion itself is that the against an attacker's model of a new technology is too the levels of product and There are clearly gradations process discontinuities perceived by different industry participants. Figure 2 shows an attempt to place the four companies into a simplistic. in product/process discontinuity matrix. Figure 2 is that with hindsight it is The obvious result shown clear that the firms on the in 14 lower product/process "efficiency frontier" have stronger will technological positions than those farther out. As a comment on final dates of entry into the models fiber optics the significant the "fiber optics discontinuity" are also given on Although the sample Figure 2. and small is it does seem logical that, given the emergence of a discontinuity, events which surround the companies who perceive the smaller first. They be will "first companies seeing a Given movers"). into together with the predicted extremely this fiber optics, to ("second shift it in could be emerging industry would occur A process which radical enter totally new markets will is a process-product discontinuity. - Fiber optics in the efficient frontier. enable the product, later documented novel fabrication techniques, expected that the next event further out on occur larger discontinuity will this, research emphasis discontinuities should occur Events associated with movers". is a non-assembled product which has emerged rapidly with the processing technology. Utterback can be used introduction of vapor phase The lifecycle-based model to explain of Abernathy and the evolution of the fiber optics industry and the implications of the management of the model are applicable the to fiber optic technology. The model's prescriptive character is consistent with the strategic moves a company makes in order to improve its competitive Technology and company strategy are advantage. interlinked not just during industry evolution, they are tightly bound during technological discontinuities as well. Technological discontinuities are discussed in the terms of two participants, an attacker and defender. here that in participants the case of fiber optics, perceive the discontinuity literature We in have seen several different industry in different ways. Within the discontinuity, the timing of the entrance of different players can be predicted based on the size of the discontinuity they perceive. 15 10^ 16 u 3 O k. T3 Q. cn _c '« 03 U c c 17 REFEFENCES Abernathy, William (1978), J. The Productivity Dilemma Baltimore: . Johns Hopkins University Press. Abernathy, William and Kim. J. B. Clark (1985), "Innovation: Research Policv the Winds of Creative Destruction" Abernathy, William Innovation in . 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