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Rethinking the market-technology relationship for innovation
research policy ELSEVIER
Research Policy 25 (1997) 1209-1219
Rethinking the market-technology relationship for innovation John Howells Department of Management Studies, Brunel University, Uxbridge, Middlesex, UB8 3PH, UK
Final version received August 1996
Abstract This paper revisits the 'what causes innovation - market pull or technology push?' debate to argue that the conceptualisation is flawed and that the finn is the only 'agent' capable of innovative action. The paper differentiates between ' use', ' need' and ' intended use' to obtain greater precision with respect to the technology-market matching process that is fundamental to innovation. The validity of the approach is demonstrated through empirical examples. These examples also show the value of distinguishing between two types of market concept used by the innovating firm. These are the 'reference market' which is a traded product that is a principal source of 'use' ideas for the mental construction of the 'innovation market' concept. It is the latter that can be thought to guide the construction of innovative production technology.
1. Introduction After sixteen years of being told that you c a n ' t buck the market, that the market will decide, that ' i t ' should be 'left to the market' and such like homilies, it might he thought that the concept of the market was incandescent in its clarity to all and needed no further thought, such is the intensity o f its use. For all that it is bandied about so much, the idea of the market needs exploration to make the process of innovation more comprehensible. Following Mowery and Rosenberg (1979) it will be argued that the only precise idea o f ' m a r k e t demand' is that o f the economist's, but that the assumptions made to render the concept precise make it especially useless when it comes to understanding innovation. As Mowery and Rosenberg note, this forces recourse to the apparently shapeless and elusive idea of user needs. The approach here is to rethink the fundamental meaning o f the core concepts ' technology' and ' m a r k e t ' in terms o f ' n e e d s ' and "use' to allow a more precise identification of a
basic innovation process. The immediate value of the approach is that false dichotomies such as 'technology push' or "market pull' may be dispensed with, but its wider significance is that it is a step in making the economy 'sociologically tractable'.
2. Market pull, technology push revisited Mowery and Rosenberg's classic review paper o f the market-pull literature is the last thorough piece of writing on the use of the idea o f market demand in innovation research. In their review of the major survey research which investigated the factors behind successful industrial innovation, they sought evidence for whether technology push or market demand was the more important influence on innovation success. The important conclusion o f the paper
i And in contrast to the assumptions of the economist, intended to make the economy mathematically tractable (Ormerod, 1994).
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was that the presumed importance of market demand over technology push was not justified by the evidence. Such a conclusion theoretically undermines the policy belief that if market demand will bring forth appropriate innovation, then government need not intervene and innovation can be 'left to the market'. Whatever the evidence in 1979, the market-orientated policy continues in practice, as is evident from the 1993 White Paper ((HMSO, 1993) really an announcement of a rationalisationmarketisation programme for (non-Ministry of Defence) publicly owned and operated science and technology institutions) and as the sale of the UK National Engineering Laboratory to Siemens demonstrates (Baxter, 1995). Since their paper there have been few subsequent attempts to determine through survey research what factors influence innovation and which could add to the debate on whether technology push or market pull has the greater importance in innovation. Mowery and Rosenberg showed that the very terms had no inherent precision, varying in meaning between research projects, so making comparison difficult. Yet the terms are in common usage and represent a favourite way of categorising failure or success in innovation, while the policy of leaving innovation to the market against which Mowery and Rosenberg inveigh has been followed regardless of the evidence for almost two decades. These are good reasons to reconsider the market-technology interaction and attempt to add precision to the terms in common use in the light of the evidence on innovation as a process. According to Mowery and Rosenberg, the term market demand was often used with imprecision and in their view, Market demand must be clearly distinguished from the potentially limitless set of human needs. Demand expressed in and mediated through the marketplace is a precise concept, denoting a systematic relationship between prices and quantities, one devolving from the constellation of consumer preferences and incomes. To be taken seriously demand-pull hypotheses must base themselves upon this precise concept and not the rather shapeless and elusive notion of 'needs'. (Mowery and Rosenberg, 1979, p. 229) Perhaps a lengthy critique would have time to
explore the economist's conception of market demand in its own terms. Certainly many of the assumptions required to make the concept of market demand precise have problems; these include assumptions about consumer preference functions, that supply and demand curves are continuous functions rather than discontinuous, that they can make incremental shifts and that they are knowable. Worse, market demand is a static concept which does not inform us of the mechanism by which shifts in supply or demand curves generate new products. Recent critiques of economics have included the argument that assumptions of this type are convenient to the economist because they make the economy 'mathematically tractable' (Hodgson, 1994; Ormerod, 1994). One may then have a precise concept but it no longer reflects reality. An alternative approach is to attempt to be more precise about the "rather shapeless and elusive notion of ' n e e d s ' " in an effort to make the economy more 'sociologically tractable'. Precision is not restricted to the domain of the mathematician.
3. Need, use and intended use
Mowery and Rosenberg's conclusion can be represented by their comment that "any careful study of the history of an innovation is likely to reveal a characteristically iterative process in which both demand and supply forces are responded to" (p. 232). Coombs et al. (1987) comment on the conclusion that successful innovation involves some kind of coupling between technology and market that "this might not seem a very original conclusion to come from a large number of studies carried out by highly qualified research teams" (p. 102). However, they suggest the value has been the demonstration of the complexity of the innovation process, the futility of looking for 'single causes' of innovation and the development of new research avenues. While these are real findings, they believe that the debate has not been settled but "advanced to a qualitatively different level" (Coombs et al., 1987, p. 102). This level does not include the argument here, that the technology push/market pull debate is a false dichotomy based on terms which are inadequate in terms of conceptualising the process of innovation, although
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the findings that the process is complex, intrinsically uncertain and nonlinear need to be taken into account. Other perspectives offer persuasive and effective instant dismissal of the terms of the technology-push versus market-pull debate. Perhaps to refer to the social-shaping literature (Bijker et al., 1985; MacKenzie and Wajcman, 1985) as a perspective is too grand, because it should be evident that only human agency, typically the firm, is capable of innovation (whatever the supporting devices the finn may use, such as inter-finn networks and despite other social movements such as professional associations, the legally incorporated organisation of the firm is where innovation is usually done). But an argument derived from the social-shaping literature will prove useful for reconceptualising the technology push/market pull debate. The term technology push contains the crude implication that technology has autonomous intention, which should surely and deservedly attract the opprobrium of the label 'technologically determinist'. In contrast the thrust of the social-shaping literature is that all technologies are socially shaped, they result from social action - a statement which is a near truism. However, it is an extension of this idea that it is difficult to imagine a technology, or more exactly an artefact, which has no i n t e n d e d u s e 2 and artefacts can be thought to embody an intended use. Nor are markets simple social agents, despite daily news references to the contrary; they cannot pull or call forth anything as complex as innovation. On the contrary, the firm and the individual are social agents whose 'technology shaping' actions are mediated by their interpretation of market trade patterns; all of the 'mechanism' by which markets affect innovation is within the agency of the firm. What Mowery and Rosenberg call the shapeless idea of needs can be given useful precision if we
2 Those technologies which are notorious for their lack of apparent commercial use when invented, such as the laser, only underline how important state, military or non-commercial organisations are in developing technologies for uses which do not have immediate civil use - they nevertheless serve non-commercial uses.
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distinguish between 'need' and 'use' and consider the market as patterns of trade in artefacts which have established uses as well as values. 'User needs' exist if users are prepared to switch spending from current products to the firm's innovation. 3 Now the conceptual 'matching' that the firm engages in is between its understanding of user needs derived from established patterns of use and its ability to embody 'intended use' in new production technology. Rather than technology and market being alternative sources of innovation, there is one basic process of innovation characterised by the social separation of control of production technology (by the firm) from established artefact uses (which may be located in a mass market or relatively few, specialist firms). This reworking of terms distinguishes between the human and the artefact components of technology and recognises that markets require interpretation by the agency of the firm to be useful in innovation. ' U s e ' is the pivotal concept in this depiction of the matching between technology and market because it avoids the implication of active, precise desire and inherent human want that are contained in 'needs'. This brings sociological precision because issues such as the nature of inherent needs are not transparent. In particular, in innovation studies there is often an assumption that if innovation is successful it is because inherent needs have been met. Simple comparisons between industrial and precapitalist societies are sufficient to convince that one should be careful with the idea of needs inherent to individual human beings as a source of innovation. Many of the needs that are satisfied by industrial innovation are associated with the social organisation characteristic of industrial society itself. Much of this organisation is around proprietary production technology and operating processes, so that existing artefact uses are indispensable in defining 'need' for firm and consumer. Such arguments give us further reason to keep a distinction between 'need' and 'use' and to adopt the view that needs are defined
3 The definition of innovation used here is that usual in the economics of innovation literature, where innovation has occurred with the first commercial transaction (for example Freeman, 1982).
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with precision only relative to current patterns of use.
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Making this idea of use central to the definition of 'technology' and 'market' also allows for those cases where the firm succeeds, through the agency of the marketing department, in altering perceptions of the value of existing uses ('use-values') to enable it to market innovation, or to maintain a constant stream of 'innovation'. This makes little sense with the technology push/market demand conception, since needs are usually and implicitly accepted as 'real', separate to the activity of the firm. In summary, in the way the innovation process has been defined above, the willingness of users to shift spending to an innovative product is synonymous with the existence of 'needs' defined relative to existing patterns of use. Needs are proven to exist in some form by successful innovation, but successfui innovation is hardly proof that needs are inherent. This approach suggests caution when confronted by injunctions such as 'pay attention to user needs', 5 because there might not be articulated needs prior to innovation or prior to persuasive activity by the firm.
4. Innovation as a socio-cognitive process
So far the concepts of market, technology, need and use have been related to one another and given useful precision, but little has been said about the process of innovation within the firm itself. I have argued elsewhere that the innovation process is essentially socio-cognitive (Howells, 1994, 1995) and this approach can usefully extend the idea of the market concept for innovation. The cognitive part of the approach is based on rethinking individual behaviour - individuals have 'bounded rationality' (March and Simon, 1973) they act as 'their own theorists' (Weick, 1979), they negotiate to alter collective belief in organisations such as the finn. It also recognises that although
4A position which is also likely to have some sociological generality and apply to tribal aborigines and industrial societies alike. 5 Such injunctions are commonly derived from research like Project SAPPHO (Rothwell, 1977).
there is no standard 'unit' of thought, thought can be fragmented, concepts isolated and elaborated or combined with other 'cognitive elements' of thought (see Weick, 1979). So a cognition is the 'lowest level' or most discrete element of perception, or element of thought, that an individual can develop. The social part of the process comes with a recognition that what individuals understand to be useful knowledge and their ability to elaborate cognitive understanding is strongly influenced by how they are organised within the firm, both with respect to other individuals and to artefacts. The firm may also manage the import of expertise and its 'hybridisation' with internally generated expertise (Howells, 1997). In this way the firm may develop highly elaborate and structured knowledge tailored to its conception of innovation. So the process of innovation is social and cognitive and change is fundamentally qualitative and incremental in nature. In-depth research into cases of innovation (Howells and Hine, 1993; Howells, 1994) tends to find that although there is a core of agreed 'fact' in accounts of the process of innovation there are many issues for which multiple interpretations persist. It makes sense to think of a project as a collection of understandings, a collection of cognitions, a 'cognitive ensemble' (Howells, 1995). The value of this approach is that it allows that the precise markettechnology match may change over time and that new production technology may be built for one market concept but then amended to meet a different market concept. Changes of this sort are accompanied by renewed debate within the firm over what the new interpretation of the market should be and what it implies, for the new knowledge base of the firm. Such questions may open and close throughout projects, as will be shown in the cases below.
5. Reference m a r k e t and innovation m a r k e t concepts
The value of the socio-cognitive approach and 'use' concepts described above can be illustrated by reference to two in-depth innovation studies. One is a study of an early biotechnology with a focus on the iterative development of market and technological ideas (Howells, 1989, 1994). The second is a case of
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information technology (IT) network design which showed profound disagreement between banks over the criteria which should guide the design of services, even over the identity of 'users' (Howells and Hine, 1993). The origin of the innovatory projects was a crude match between undeveloped, untailored market concept and technological ability which was elaborated through time. 6 Some of the firms that elaborated market understanding most thoroughly showed that it made sense to think of two market concepts, which I shall term an innovation market concept and a reference market concept. The innovation market concept is the projected market for the innovatory product; this must be a mental construction of those qualities by which prospective users would value the product and which managers use to guide the construction of new production technology. The reference market, on the other hand, is an existing market based on real, traded products, an existing pattern of production and use which is understood in most detail by those producing and those consuming those products. The reference market is so-called because it is the market concept to which the innovating firm managers refer most in the process of constructing the innovation market concept; it is the major cognitive resource in building the innovatory market concept. The construction of the innovation market concept is a cognitive process of understanding the qualities that make up the reference market and selecting those that are valued, for inclusion in the innovation market concept. This process may not be taken very far or it may be very elaborate - but upon it depends the quality and extent to which the new production technology will have market understanding built into its hardware and operating practices.
6. Reference and innovation market concepts in practice - protein biomass (bioprotein) production technology The reference market may be drawn almost entirely from past firm experience. At one extreme in
6The crude match was between firms' chemical or foodprocessing technology abilities and the possibility of producing foods or cheap proteinaceous animal feeds.
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biomass production, the firm would not do any market research, but like the company SugarCo with its Third World protein product would rely on industry received wisdom to guide development of its product. At the other extreme, ICI talked to feed compounders and came to have as good an understanding of their requirements as they had themselves, despite having no previous experience of the feed industry. To use the animal feed market as an example, the compounders who deal in this 'real' market cannot be relied on to have an exact knowledge of the qualities of feeds they trade in. The compounders themselves only have a model of what qualities match the 'needs' of the farmers they trade with. For example, a 'good feed' is one that gives rapid weight gain, lean tissue gain etc. This is related by their model to amino acid profile, and mineral and vitamin content of feeds. The models they have developed allow them to discriminate between the commonly encountered differences between feeds, but limit their ability to judge ICI's bioprotein product (Pruteen) where it had qualities other than those they already understood. In feeding trials that used feed formulations with high percentages of Pruteen, animals became sick or died. One interpretation of such trials was that the product was toxic. However, ICI's R & D department showed that the product was selenium deficient and that once selenium was added to Pruteen-based feed animals thrived on a Pruteen diet. Pruteen production engineers had adjusted selenium inputs to the requirements of the microbe to minimise input costs. This strain of microbe had little need for selenium compared to multicellular life, knowledge unavailable from the reference market because fish meal contained more than sufficient selenium for animal feeds; compounders never had to specify minimum selenium contents and knew nothing about the possibility of selenium deficiency. This was a problem unique to certain microbial feeds. The example shows how important is the ability to modify the ideas drawn from the reference market alone. It also shows that functional departments other than that of marketing may be crucial in this process; the marketing department may be seen as a specialist in interpretations of the reference market concept and therefore a major contributor to the innovation market concept,
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but it may not be wholly responsible for the innovation market concept. In the ICI example science and technical knowledge were important inputs to the innovation market concept. In the case of BP, interpretations of endconsumer perceptions of the production technology itself became an important input into the innovation market concept. BP also used the feed compounders as a reference market for its innovatory feed and as in the UK, compounders accepted the safety and value of yeast biomass grown on a petrochemical (alkane) substrate as an input to animal feeds. However, animals grown on bioprotein would eventually be eaten by people and BP did not include the perceptions of Italian meat consumers as part of their reference market and did not anticipate that these meat consumers would repudiate (or would be persuaded to repudiate) meat from animals fed with their product. The situation became especially complex because BP had to contend with a powerful consumer-interest lobby (with mysterious sources of funds) which successfully paralysed the Italian state bodies responsible for approving production of the BP products through claims that bioproteins were toxic. In effect BP were engaged in a battle to shape consumers' perceptions of their product, which they lost. Against them was a prior low level of public trust in foreign-owned companies' activities, the result of several notorious disasters like that at Seveso, and a press consistently hostile to the attempt to derive what would ultimately be human food from crude oil. Reliance on a tightly defined reference market with precise needs proved of little use once these consumer groups succeeded in undermining public confidence in the technology and the regulatory regime provided by the state. The Ranks Hovis project began in the 1960s with the idea that the product would be a dried, powdered protein food supplement for Third World populations. The loss of Iranian government interest and of chemical firm project partners able to scale up such a process led to a rethinking of the reference market. Now the First World consumer's perception of 'meat' would act as a reference market for the innovatory market concept. Key requirements for the product that would become known as ' Q u o m ' were that it would be fresh, not dried and that it should have
texture deriving from the structure of the food rather than a manufacturing process. The R & D department developed a process which enabled the extraction of cell nucleic acids while retaining the texture derived from the filamentous nature of the fungus, which simulated the texture of muscle fibres when eaten. This was long term development and it occurred without the firm having confidence that it could capture an income stream from a commercial product. This occurred in the 1980s, when a match could be made between the fungus' nutritional characteristics and the developing market for health foods. The fungus had only polyunsaturated fats, not saturated, it was low in calories and contained no cholesterol - unlike meat. With the expectation that some meat consumers would be prepared to switch consumption to a 'healthy' alternative to meat, while continuing to want meat product characteristics, full commercialisation of the product began. In this case a prior company understanding of why consumers enjoyed meat comprised the reference market concept which set a major R & D objective; when achieved it would be embodied in the Quorn production process. Committed to commercialisation, Ranks were aware of the BP problems in Italy and according to the marketing manager, actively prepared for the problems that might ensue should anyone begin querying the health characteristics of Quom through identifying its source as ICI's major chemical manufacturing site at Middlesbrough. A major perception-moulding campaign was developed to prepare the market for Quorn products. So in the marketing of the first product, the 'Savoury Pie', there was no allusion to the fact that the organism had only been eaten by human beings experimentally. 'Novelty' was not a characteristic Ranks wished to associate with their novel food product. So the filamentous fungus on which the product was based was referred to on packaging as a ' member of the mushroom family', because the common English usage of mushroom includes all fungi. All these examples show marketing as the process of preparing and shaping user perceptions. In these examples not just project, finn and industry-specific knowledge was drawn upon to establish the innovation market concept. A general understanding of the future evolution of bulk protein
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prices was an essential element of the innovation market concept for projects aimed at the animal feed market. Firms reasoned that Third World governments would begin to switch their soya crops from export to feed growing local populations. There would follow a sharp rise in world protein prices and shortages of animal feed in First World countries: the future market for new fermented protein feeds was assured, in the long run. Senior management belief in the validity of this scenario gave them confidence in the novel feed projects. Unfortunately, by the mid-1970s the market had not materialised; food shortages rather than protein shortages were identified as a future problem and these failed in any case to materialise quickly because of the 'green revolution'. Even where local food shortages occurred, Third World governments did not divert export crops to feed local populations. Socio-political expectations were built into the innovation market concept for novel feed products. These rationales may have unravelled but they were critical in generating the projects, and once projects had begun firms attempted to maintain some kind of technology-market 'match' by changing both technology and market concepts; all the firms altered market concepts during their projects. Of course production technology was more difficult to change the closer the project was to beginning commercial production. Eventually all the projects which had built large capacity plants dependent on bulk protein prices would be closed (the Ranks Hovis Quorn project survived because the market concept was not bulk protein price-dependent). ICI's reaction to the rise in their methanol feedstock price in 1979 was to intensively research and reconstruct their market concept, before eventually acknowledging defeat in the mid-1980s. For a time the plant was operated in 'campaigns' to produce Pruteen for the relatively small, but high value-added veal calf milk-replacer market. In the mid-1970s ICI had considered building a smaller plant, dedicated to this market alone; had they done so they might still be making Pruteen. That particular technologymarket match was not made, for reasons concerning ICI chemical engineers' perceptions of what constituted a cost-effective scale of plant (see Howelis, 1989). However, when they were caught with a high
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capacity plant for whose output there was only a limited niche market, an intensive search for additional high value-added markets was launched. The company had considered food markets, and for a time researched a technology-market match, but early in the project became committed to bulk feed markets. Now there was a return to food market concepts, but with a technology developed for another innovatory market concept. For a few years ICI thought Pruteen could be broken into two fractions, cell nucleic acids and the remaining proteinaceous biomass. The first could be sold to the Japanese because they had a shortage of such products as inputs to their soya sauce industry, the second could be further broken into food additives; gelling, foaming and stiffening agents for prepared food products. Though the firm thought this highly elaborate market concept viable, the Japanese eventually pulled out of negotiations; without the nucleic acid market the proteinaceous biomass niche markets were unviable. Shortly after the Pruteen project was closed. BP had also researched similar niche food markets for its protein product, but in response to a company-wide strategy of diversification in the 1960s. Their reaction to the oil price hike of 1973 was to attempt to license the technology they had developed to hydrocarbon-producing countries, where it might still be profitable. This was made difficult because they needed to show potential licensees that the technology worked by operating their new Italian plant. The problem was the absolute refusal of the Italian authorities to license production at the plant, even if the product was not sold into the Italian market. BP waited two years in an attempt to gain such permission, but eventually lost patience, closed the plant and ended involvement in biotechnology. 7. EFTPOS networks
The value of the reference and innovation market concepts for making sense of the technology-market matching process is not confined to early biotechnology. In particular, they can be seen to aid our understanding of the UK banking industry's design and implementation of an IT network for EFTPOS (Electronic Funds Transfer at the Point of Sale) (Howells and Hine, 1993).
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The banks intended EFTPOS to lower the costs of paper-based money transmission, especially the costs of processing cheques and this core intended use remained throughout the project. However, the precise design of the network changed repeatedly. This was essentially because although EFTPOS began as a collectively supported effort to rationalise money transmission processes, the design was ultimately shaped by the desire of some banks to develop strong inter-bank competition. With this changing pattern of bank alliances around different designs, a problem was the use of a variety of reference markets. The first reference market concept was the use of the established automatic teller machine (ATM) network to inform design of EFTPOS. It is fair to say that for a time this reference market w a s the innovation market concept; many patterns of ATM use were transferred directly to Eb-TPOS design. So at one stage it was thought that consumers should use personal identification numbers (PINs) to authenticate transactions in retailing premises, that these transactions would be processed almost wholly online, that security in the network would be provided through encryption, that the means of encryption should be the Data Encryption Standard (DES) algorithm and that this algorithm should be implemented in the same way as in the ATM network. All of these design features were justified by the assumption that the patterns of use of the EFTPOS network would be similar to the use of the ATM networks. All of these design features were abandoned by the time the E V H ~ S network which supports the current Switch debit card was built. Unlike the ATM network, there were at least two groups of users for EFTPOS, consumers and retailers, three groups if the banks themselves are included. The background to abandonment was increasing competition between banks which increased the power of retailers to influence EFTPOS design. So elements of use which suited the banks but not the retailers were dropped; these included a high percentage of on-line processing, transaction floor limits linked to credit worthiness of bank customers rather than type and volume of retailer transactions and the use of PINs at the point of sale. The reference market for retailers was customer use of the point of sale, which they wished should not be made
more difficult, complex or slower by the banks' EFTPOS design. One could argue that the banks attempted to wilfully ignore the EFTPOS requirements of retailers and that retailers' expressed needs should have been their reference market. But EFI'POS concerned two oligopolistic industries where the power balance over the design of the point of sale was not a foregone conclusion - in other European countries, for example Denmark, banks succeeded in imposing their vision of EFTPOS, designed to suit their needs as 'internal consumers'. So one can conclude that alternative reference markets existed and that until the uncertainty over who had power over the point of sale was resolved there was also uncertainty over which set of use concepts would be built into UK EFTPOS. This is a complicated case, but it vindicates the reworked concepts for innovation. It is difficult to see how common-usage concepts could be applied to it; the market comprised three groups of users and the social entity controlling network design was a coalition of groups that kept changing. There was never a single, persistent and identifiable reference market or innovatory market concept that could support a single, precise design, independent of a struggle for power.
8. U s e r as innovator and split agency
The argument has been developed from the innovation studies literature, but it is applicable to other treatments of the market-technology relationship. It will be argued that these vary principally in how they assume the agency for innovation is split between firms and that certain kinds of split tend to support better the use of terms like 'need'. Although the firm is the social agent of innovation that does not mean that a single firm must be the innovator; the agent's role may be split in various ways between firms. In the interesting case where the 'user' of an innovation is another firm it may be possible for that user to be an actor to some degree in the process of innovation. This case is covered in the new product development literature, where Souder recognises in his Customer Developer Condition model that users vary in their ability to recog-
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nise their own 'needs' and their ability to express them, perhaps even in as detailed a form as a product specification (Souder, 1987). One could argue that in recognising their own needs these firms are adopting some of the role of innovating agency; they understand something of the capability of the developer firm and its potential role in changing their own practices. In this case of 'sophisticated user' Souder argues that the developer firm's marketing department has little or no role. On the other hand, for the more usual case where users are unable or less able to articulate their own 'needs', (certainly true of mass markets) the marketing department of the developer must be more or less sophisticated and may attempt to compensate for user inabilities by (in my terms) active development of reference and innovatory market concepts. In Souder's model then, the activity of explicitly identifying 'needs' (patterns of use from which to develop an intended use) must occur somewhere, but to an extent may be split between user and developer finns. Von Hippel has shown that the sources of innovation can vary even more than in Souder's model and in addition that the relative contribution to innovation appears to vary by industrial sector; in four cases of scientific instrument development he found that users (in these cases scientists working in universities) were also the developers in 77% of the 111 innovations studied (yon Hippel, 1988, p. 13). In these cases not only the innovation stage of identifying need, but also the research and development of prototypes is conducted by users. Von Hippel therefore feels able to challenge what he calls the received wisdom, that product manufacturers are typically the developers of product innovations; for von Hippel, the user is the innovator for the case of scientific instruments. However, yon Hippel defines 'first innovator' as whoever first develops a later-commercialised innovation - in contrast to the common definition of innovator as whoever first brings a product to market. With the latter definition, even in scientific instruments the principal innovator would remain the manufacturer. In any case there is great economic importance in the stage of innovation which consists of designing a production process, scaling up production, reducing production costs and actively marketing the product - even if this is less so in scientific
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instruments, which is not certain. Perhaps this is to cavil; yon Hippel certainly demonstrates that the location of essential parts of the new product development process may be outside the manufacturing firm. But von Hippel's examples of user-dominated innovation processes (others are semiconductor and printed circuit board assembly processes) are just another version of Souder's sophisticated user scenario, except that even more 'typical' functions of the developer are now performed by the user. It might be argued that the case of scientific instruments is an unusual one, because by definition these users have developer abilities. However, it is easy enough to think of other ways in which the innovation activities are split between, or are integrated into firms; individual firms innovate for their own purposes, individual entrepreneurs innovate 7 and complex alliances of agencies may form around the innovatory concept, as in Molina's socio-technical constituencies (Molina, 1990). All these examples demonstrate that the agency for innovation may be split in many ways. There is no reason why such variation in the organisational location of innovation activities should change the fundamental socio-cognitive process of innovation and associated concepts discussed in this paper. The discussion rather strengthens the value of these concepts, for where the user takes on part of the role of innovator it becomes even more extraordinary to think of technology push and market pull as opposites; the prospective user both understands an existing pattern of use and can conceptualise an intended use. In such cases, user-expressed 'intended use' may often be treated as real 'need' in advance of the commercialisation of a new product, because there is less of an organisational division between developer and user, source of much innovation failure. In short, where users possess developer abilities, the organisational location of parts of the innovation process is changed, but not the process itself; nor is the critique of market demand/technology push. Such users have some ability to analyse their own patterns of use and construct 'intended uses', but most often the intended use is still embodied in
7 An excellent example is the revisionist account o f Eli Whirney's innovation of the cotton gin in Basalla (1988).
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production technology by another developer or manufacturing firm. Whatever the division of agency, the object remains generation and then synthesis of knowledge in pursuit of the innovatory market concept.
9. Conclusions - the ' m a r k e t ' for innovation
This paper began with Mowery and Rosenberg's review of innovation survey research and their criticism of the vagueness of terms such as 'technology push' and 'market pull'. The location of intention in the firm and a definition of 'needs' and 'use' enables a more precise discussion of the relationship between technology and market in the process of innovation. In particular the idea of the market has been reworked. In innovation the market is not a social agency, but it is a rich and complex source of proven uses with associated values, some of which the firm selects to build its innovation market concept. This concept is an assembly of 'ideas of use' which guides the development of new production technology so that the 'intended use' of innovatory products matches the selected, existing uses of the market concept. In this selection process there may be a 'reference market' which provides most of the guiding 'use-values' for innovation, but as the examples showed, criteria of use may also be drawn from the R & D department, firm experience and market research. Innovation depicted here is an essentially qualitative and socio-cognitive process.
10. Novelty and the m a r k e t concept
Mowery and Rosenberg note in their review paper that the most radical (successful) innovations were recognised to be least associated with market pull, however that was defined by different authors, and that this was a further argument against the primacy of market pull in innovation. Greater novelty can be understood within the socio-cognitive approach as a more innovative combination of use concepts, which implies less dependence on a reference market concept. There is still an innovation market concept assembled from use concepts and these still derive from existing use patterns, but their novelty lies in their synthesis. As
argued elsewhere (Howells, 1995) this avoids the need for genius or intuitive leaps which spontaneously generate novelty. Instead, novelty is most often in the eye of the beholder, because the beholder is unable to appreciate the origins of the ideas that, now recombined, have created an artefact that has leapt finn or industry boundaries. The argument that novelty is often more in the particular synthesis of existing ideas and the transfer of new syntheses into new areas of the economy is found elsewhere, for example in Basalla's work on the history of technology (Basalla, 1988). What is not found in Basalla is the possibility that the process may have an organisational context and may therefore be susceptible to management.
11. Policy implications - firm and state
Recognition is widespread that innovation involves a synthesis of knowledge, knowledge that is usually functionally organised within the firm and of course to an extent sited outside the firm in the form of patterns of product use. In a range of different sectors writers have advocated a similar variety of organisational devices intended to facilitate the exchange of specialist knowledge in the interests of innovation. So Skyrme has listed devices like job rotation and joint steering groups that can break down the severe distinction between commercial and IT expertise in organisations (Skyrme, 1992). Effective management across functional boundaries has been identified as a source of Japanese competitive advantage in the car industry (for example, Womack et al., 1990). Souder has written extensively on the R & D / m a r k e t i n g interface, documented its role in poor quality innovation and suggested mechanisms for facilitating these departments' cooperation and exchange of knowledge (Souder, 1987; Moenaert et al., 1994). It would seem that one of the firm's dilemmas in innovation is the simultaneous development of specialist knowledge groups that can yet cooperate in the process of synthesising knowledge for innovation. If there is a general tendency here, it is towards the active management of expertise in the interests of better innovation, whether the synthesis is between business and IT knowledge, or R & D and marketing knowledge.
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At the beginning of this paper it was noted that Mowery and Rosenberg showed that survey research on innovation did not support 'laisser innover', the policy that innovation 'should be left to the market'. For these authors, this conclusion justified the alternative policy concern with the 'supply side'. Just as this paper has been concerned with basic definitions that break the false opposition of the market pull/technology push debate, so it can be argued that there is a false policy dichotomy associated with that debate. The policy conclusions that follow from this paper are different in language and different in nature, and there is no such apparently stark choice as between supply-side policies and laisser innover. This paper makes much of the simple point that the firm is the social agency that specialises in innovation. That being so, the firm should be left to manage the precise form of the technology-market match and the concomitant uncertainty of success in innovation. The same simple point leads to a natural policy concern with both the firm's ability and incentive to innovate. This might include a concern for what are usually termed innovation supply-side factors (such as the number of engineers available for employment etc.), but if 'supply side' is restricted to the provision of inputs to firms in which incentives and abilities are assumed unproblematic, the term is restrictive and perhaps better not used. Nor is this policy a version of laissez innover, of leaving innovation to the market, since this usually implies not only non-interference in the technology-market match but non-interference in producers' abilities and incentives. There should be room for institutional policies: policies on competition, financial and legal institutions, for these more obviously shape the firm's incentive to innovate, as well as its ability. But the elaboration of a full policy framework compatible with this reconceptualised market-technology relationship is perhaps best left to another paper.
References Basalla, G., 1988, The evolution of technology (Cambridge University Press, Cambridge).
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Baxter, A., 1995, Siemens unit chosen to buy DTI laboratory, Financial Times, 9 August, 6. Bijker, W., T.P. Hughes, T.J. Pinch, eds., 1985, The social construction of technological systems (MIT Press, Cambridge, Massachusetts). Coombs, R., P. Saviotti, and V. Walsh, 1987, Economics and technological change (Macmillan, London). Freeman, C., 1982, The economics of industrial innovation (Pinter, London). yon Hippel, E., 1988, The sources of innovation (Oxford, Oxford University Press). HMSO, 1993, Realising our potential (London, HMSO). Hodgson, G., 1994, Economics and evolution (Blackwell, Polity Press, Oxford). Howells, J., 1989, A case study in technical innovation: Novel microbial foods in Western Europe, Unpublished Ph.D. thesis (Nottingham Trent University, Nottingham). Howells, J., 1994, Managers and innovation: The strategic construction of a biotechnology (Routledge, London). Howells, J., 1995, A socio-cognitive approach towards innovation, Research Policy 24, 883-894. Howells, J., 1997, Management and the hybridisation of expertise in network design, Journal of Information Technology 12. Howells, J. and J. Hine, eds., 1993, Innovative banking: Competition and the configuration of a new network technology (Routledge, London). MacKenzie, D. and J. Wajcman, 1985, The social shaping of technology (Open University Press, Milton Keynes). March, J.G. and H.A. Simon, 1973, Organisations (Blackwell, Oxford). Moenaert, R.K., W.E. Souder, A. De Meyer, and D. Deschoolmeester, 1994, R&D-marketing integration mechanisms, communication flows and innovation success, Journal of Product Innovation Management 11, 31-45. Molina, A., 1990, Transputers and transputer-based parallel computers: Sociotechnical constituencies and the build-up of British-European capabilities in information technologies, Research Policy 19, 309-333. Mowery, D.C. and N. Rosenberg, 1979, The influence of market demand upon innovation: A critical review of some recent empirical studies, Research Policy 3, 220-242. Ormerod, P., 1994, The death of economics (Faber and Faber, London). Rothwell, R., 1977, The characteristics of successful innovators and technically progressive firms, R&D Management 7, 191206. Skyrme, D., 1992, From hybrids to bridge-building, Working Paper RDP92/1 (Oxford Institute of Information Management, Templeton College, Oxford). Souder, W.E., 1987, Managing new product innovations (Lexington Books, Lexington, Massachusetts). Weick, K.E., 1979, The social psychology of organising (Addison-Wesley, Reading, MA). Womack, J.P., D.T. Jones, and D. Roos, 1990, The machine that changed the world (Oxford, Maxwell-Macmillan International).
Research Policy 25 (1997) 1209-1219
Rethinking the market-technology relationship for innovation John Howells Department of Management Studies, Brunel University, Uxbridge, Middlesex, UB8 3PH, UK
Final version received August 1996
Abstract This paper revisits the 'what causes innovation - market pull or technology push?' debate to argue that the conceptualisation is flawed and that the finn is the only 'agent' capable of innovative action. The paper differentiates between ' use', ' need' and ' intended use' to obtain greater precision with respect to the technology-market matching process that is fundamental to innovation. The validity of the approach is demonstrated through empirical examples. These examples also show the value of distinguishing between two types of market concept used by the innovating firm. These are the 'reference market' which is a traded product that is a principal source of 'use' ideas for the mental construction of the 'innovation market' concept. It is the latter that can be thought to guide the construction of innovative production technology.
1. Introduction After sixteen years of being told that you c a n ' t buck the market, that the market will decide, that ' i t ' should be 'left to the market' and such like homilies, it might he thought that the concept of the market was incandescent in its clarity to all and needed no further thought, such is the intensity o f its use. For all that it is bandied about so much, the idea of the market needs exploration to make the process of innovation more comprehensible. Following Mowery and Rosenberg (1979) it will be argued that the only precise idea o f ' m a r k e t demand' is that o f the economist's, but that the assumptions made to render the concept precise make it especially useless when it comes to understanding innovation. As Mowery and Rosenberg note, this forces recourse to the apparently shapeless and elusive idea of user needs. The approach here is to rethink the fundamental meaning o f the core concepts ' technology' and ' m a r k e t ' in terms o f ' n e e d s ' and "use' to allow a more precise identification of a
basic innovation process. The immediate value of the approach is that false dichotomies such as 'technology push' or "market pull' may be dispensed with, but its wider significance is that it is a step in making the economy 'sociologically tractable'.
2. Market pull, technology push revisited Mowery and Rosenberg's classic review paper o f the market-pull literature is the last thorough piece of writing on the use of the idea o f market demand in innovation research. In their review of the major survey research which investigated the factors behind successful industrial innovation, they sought evidence for whether technology push or market demand was the more important influence on innovation success. The important conclusion o f the paper
i And in contrast to the assumptions of the economist, intended to make the economy mathematically tractable (Ormerod, 1994).
0048-7333/97/$17.00 Copyright © 1997 Elsevier Science B.V. All rights reserved. PII S0048-7333(96)00904-3
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was that the presumed importance of market demand over technology push was not justified by the evidence. Such a conclusion theoretically undermines the policy belief that if market demand will bring forth appropriate innovation, then government need not intervene and innovation can be 'left to the market'. Whatever the evidence in 1979, the market-orientated policy continues in practice, as is evident from the 1993 White Paper ((HMSO, 1993) really an announcement of a rationalisationmarketisation programme for (non-Ministry of Defence) publicly owned and operated science and technology institutions) and as the sale of the UK National Engineering Laboratory to Siemens demonstrates (Baxter, 1995). Since their paper there have been few subsequent attempts to determine through survey research what factors influence innovation and which could add to the debate on whether technology push or market pull has the greater importance in innovation. Mowery and Rosenberg showed that the very terms had no inherent precision, varying in meaning between research projects, so making comparison difficult. Yet the terms are in common usage and represent a favourite way of categorising failure or success in innovation, while the policy of leaving innovation to the market against which Mowery and Rosenberg inveigh has been followed regardless of the evidence for almost two decades. These are good reasons to reconsider the market-technology interaction and attempt to add precision to the terms in common use in the light of the evidence on innovation as a process. According to Mowery and Rosenberg, the term market demand was often used with imprecision and in their view, Market demand must be clearly distinguished from the potentially limitless set of human needs. Demand expressed in and mediated through the marketplace is a precise concept, denoting a systematic relationship between prices and quantities, one devolving from the constellation of consumer preferences and incomes. To be taken seriously demand-pull hypotheses must base themselves upon this precise concept and not the rather shapeless and elusive notion of 'needs'. (Mowery and Rosenberg, 1979, p. 229) Perhaps a lengthy critique would have time to
explore the economist's conception of market demand in its own terms. Certainly many of the assumptions required to make the concept of market demand precise have problems; these include assumptions about consumer preference functions, that supply and demand curves are continuous functions rather than discontinuous, that they can make incremental shifts and that they are knowable. Worse, market demand is a static concept which does not inform us of the mechanism by which shifts in supply or demand curves generate new products. Recent critiques of economics have included the argument that assumptions of this type are convenient to the economist because they make the economy 'mathematically tractable' (Hodgson, 1994; Ormerod, 1994). One may then have a precise concept but it no longer reflects reality. An alternative approach is to attempt to be more precise about the "rather shapeless and elusive notion of ' n e e d s ' " in an effort to make the economy more 'sociologically tractable'. Precision is not restricted to the domain of the mathematician.
3. Need, use and intended use
Mowery and Rosenberg's conclusion can be represented by their comment that "any careful study of the history of an innovation is likely to reveal a characteristically iterative process in which both demand and supply forces are responded to" (p. 232). Coombs et al. (1987) comment on the conclusion that successful innovation involves some kind of coupling between technology and market that "this might not seem a very original conclusion to come from a large number of studies carried out by highly qualified research teams" (p. 102). However, they suggest the value has been the demonstration of the complexity of the innovation process, the futility of looking for 'single causes' of innovation and the development of new research avenues. While these are real findings, they believe that the debate has not been settled but "advanced to a qualitatively different level" (Coombs et al., 1987, p. 102). This level does not include the argument here, that the technology push/market pull debate is a false dichotomy based on terms which are inadequate in terms of conceptualising the process of innovation, although
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the findings that the process is complex, intrinsically uncertain and nonlinear need to be taken into account. Other perspectives offer persuasive and effective instant dismissal of the terms of the technology-push versus market-pull debate. Perhaps to refer to the social-shaping literature (Bijker et al., 1985; MacKenzie and Wajcman, 1985) as a perspective is too grand, because it should be evident that only human agency, typically the firm, is capable of innovation (whatever the supporting devices the finn may use, such as inter-finn networks and despite other social movements such as professional associations, the legally incorporated organisation of the firm is where innovation is usually done). But an argument derived from the social-shaping literature will prove useful for reconceptualising the technology push/market pull debate. The term technology push contains the crude implication that technology has autonomous intention, which should surely and deservedly attract the opprobrium of the label 'technologically determinist'. In contrast the thrust of the social-shaping literature is that all technologies are socially shaped, they result from social action - a statement which is a near truism. However, it is an extension of this idea that it is difficult to imagine a technology, or more exactly an artefact, which has no i n t e n d e d u s e 2 and artefacts can be thought to embody an intended use. Nor are markets simple social agents, despite daily news references to the contrary; they cannot pull or call forth anything as complex as innovation. On the contrary, the firm and the individual are social agents whose 'technology shaping' actions are mediated by their interpretation of market trade patterns; all of the 'mechanism' by which markets affect innovation is within the agency of the firm. What Mowery and Rosenberg call the shapeless idea of needs can be given useful precision if we
2 Those technologies which are notorious for their lack of apparent commercial use when invented, such as the laser, only underline how important state, military or non-commercial organisations are in developing technologies for uses which do not have immediate civil use - they nevertheless serve non-commercial uses.
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distinguish between 'need' and 'use' and consider the market as patterns of trade in artefacts which have established uses as well as values. 'User needs' exist if users are prepared to switch spending from current products to the firm's innovation. 3 Now the conceptual 'matching' that the firm engages in is between its understanding of user needs derived from established patterns of use and its ability to embody 'intended use' in new production technology. Rather than technology and market being alternative sources of innovation, there is one basic process of innovation characterised by the social separation of control of production technology (by the firm) from established artefact uses (which may be located in a mass market or relatively few, specialist firms). This reworking of terms distinguishes between the human and the artefact components of technology and recognises that markets require interpretation by the agency of the firm to be useful in innovation. ' U s e ' is the pivotal concept in this depiction of the matching between technology and market because it avoids the implication of active, precise desire and inherent human want that are contained in 'needs'. This brings sociological precision because issues such as the nature of inherent needs are not transparent. In particular, in innovation studies there is often an assumption that if innovation is successful it is because inherent needs have been met. Simple comparisons between industrial and precapitalist societies are sufficient to convince that one should be careful with the idea of needs inherent to individual human beings as a source of innovation. Many of the needs that are satisfied by industrial innovation are associated with the social organisation characteristic of industrial society itself. Much of this organisation is around proprietary production technology and operating processes, so that existing artefact uses are indispensable in defining 'need' for firm and consumer. Such arguments give us further reason to keep a distinction between 'need' and 'use' and to adopt the view that needs are defined
3 The definition of innovation used here is that usual in the economics of innovation literature, where innovation has occurred with the first commercial transaction (for example Freeman, 1982).
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with precision only relative to current patterns of use.
4
Making this idea of use central to the definition of 'technology' and 'market' also allows for those cases where the firm succeeds, through the agency of the marketing department, in altering perceptions of the value of existing uses ('use-values') to enable it to market innovation, or to maintain a constant stream of 'innovation'. This makes little sense with the technology push/market demand conception, since needs are usually and implicitly accepted as 'real', separate to the activity of the firm. In summary, in the way the innovation process has been defined above, the willingness of users to shift spending to an innovative product is synonymous with the existence of 'needs' defined relative to existing patterns of use. Needs are proven to exist in some form by successful innovation, but successfui innovation is hardly proof that needs are inherent. This approach suggests caution when confronted by injunctions such as 'pay attention to user needs', 5 because there might not be articulated needs prior to innovation or prior to persuasive activity by the firm.
4. Innovation as a socio-cognitive process
So far the concepts of market, technology, need and use have been related to one another and given useful precision, but little has been said about the process of innovation within the firm itself. I have argued elsewhere that the innovation process is essentially socio-cognitive (Howells, 1994, 1995) and this approach can usefully extend the idea of the market concept for innovation. The cognitive part of the approach is based on rethinking individual behaviour - individuals have 'bounded rationality' (March and Simon, 1973) they act as 'their own theorists' (Weick, 1979), they negotiate to alter collective belief in organisations such as the finn. It also recognises that although
4A position which is also likely to have some sociological generality and apply to tribal aborigines and industrial societies alike. 5 Such injunctions are commonly derived from research like Project SAPPHO (Rothwell, 1977).
there is no standard 'unit' of thought, thought can be fragmented, concepts isolated and elaborated or combined with other 'cognitive elements' of thought (see Weick, 1979). So a cognition is the 'lowest level' or most discrete element of perception, or element of thought, that an individual can develop. The social part of the process comes with a recognition that what individuals understand to be useful knowledge and their ability to elaborate cognitive understanding is strongly influenced by how they are organised within the firm, both with respect to other individuals and to artefacts. The firm may also manage the import of expertise and its 'hybridisation' with internally generated expertise (Howells, 1997). In this way the firm may develop highly elaborate and structured knowledge tailored to its conception of innovation. So the process of innovation is social and cognitive and change is fundamentally qualitative and incremental in nature. In-depth research into cases of innovation (Howells and Hine, 1993; Howells, 1994) tends to find that although there is a core of agreed 'fact' in accounts of the process of innovation there are many issues for which multiple interpretations persist. It makes sense to think of a project as a collection of understandings, a collection of cognitions, a 'cognitive ensemble' (Howells, 1995). The value of this approach is that it allows that the precise markettechnology match may change over time and that new production technology may be built for one market concept but then amended to meet a different market concept. Changes of this sort are accompanied by renewed debate within the firm over what the new interpretation of the market should be and what it implies, for the new knowledge base of the firm. Such questions may open and close throughout projects, as will be shown in the cases below.
5. Reference m a r k e t and innovation m a r k e t concepts
The value of the socio-cognitive approach and 'use' concepts described above can be illustrated by reference to two in-depth innovation studies. One is a study of an early biotechnology with a focus on the iterative development of market and technological ideas (Howells, 1989, 1994). The second is a case of
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information technology (IT) network design which showed profound disagreement between banks over the criteria which should guide the design of services, even over the identity of 'users' (Howells and Hine, 1993). The origin of the innovatory projects was a crude match between undeveloped, untailored market concept and technological ability which was elaborated through time. 6 Some of the firms that elaborated market understanding most thoroughly showed that it made sense to think of two market concepts, which I shall term an innovation market concept and a reference market concept. The innovation market concept is the projected market for the innovatory product; this must be a mental construction of those qualities by which prospective users would value the product and which managers use to guide the construction of new production technology. The reference market, on the other hand, is an existing market based on real, traded products, an existing pattern of production and use which is understood in most detail by those producing and those consuming those products. The reference market is so-called because it is the market concept to which the innovating firm managers refer most in the process of constructing the innovation market concept; it is the major cognitive resource in building the innovatory market concept. The construction of the innovation market concept is a cognitive process of understanding the qualities that make up the reference market and selecting those that are valued, for inclusion in the innovation market concept. This process may not be taken very far or it may be very elaborate - but upon it depends the quality and extent to which the new production technology will have market understanding built into its hardware and operating practices.
6. Reference and innovation market concepts in practice - protein biomass (bioprotein) production technology The reference market may be drawn almost entirely from past firm experience. At one extreme in
6The crude match was between firms' chemical or foodprocessing technology abilities and the possibility of producing foods or cheap proteinaceous animal feeds.
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biomass production, the firm would not do any market research, but like the company SugarCo with its Third World protein product would rely on industry received wisdom to guide development of its product. At the other extreme, ICI talked to feed compounders and came to have as good an understanding of their requirements as they had themselves, despite having no previous experience of the feed industry. To use the animal feed market as an example, the compounders who deal in this 'real' market cannot be relied on to have an exact knowledge of the qualities of feeds they trade in. The compounders themselves only have a model of what qualities match the 'needs' of the farmers they trade with. For example, a 'good feed' is one that gives rapid weight gain, lean tissue gain etc. This is related by their model to amino acid profile, and mineral and vitamin content of feeds. The models they have developed allow them to discriminate between the commonly encountered differences between feeds, but limit their ability to judge ICI's bioprotein product (Pruteen) where it had qualities other than those they already understood. In feeding trials that used feed formulations with high percentages of Pruteen, animals became sick or died. One interpretation of such trials was that the product was toxic. However, ICI's R & D department showed that the product was selenium deficient and that once selenium was added to Pruteen-based feed animals thrived on a Pruteen diet. Pruteen production engineers had adjusted selenium inputs to the requirements of the microbe to minimise input costs. This strain of microbe had little need for selenium compared to multicellular life, knowledge unavailable from the reference market because fish meal contained more than sufficient selenium for animal feeds; compounders never had to specify minimum selenium contents and knew nothing about the possibility of selenium deficiency. This was a problem unique to certain microbial feeds. The example shows how important is the ability to modify the ideas drawn from the reference market alone. It also shows that functional departments other than that of marketing may be crucial in this process; the marketing department may be seen as a specialist in interpretations of the reference market concept and therefore a major contributor to the innovation market concept,
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but it may not be wholly responsible for the innovation market concept. In the ICI example science and technical knowledge were important inputs to the innovation market concept. In the case of BP, interpretations of endconsumer perceptions of the production technology itself became an important input into the innovation market concept. BP also used the feed compounders as a reference market for its innovatory feed and as in the UK, compounders accepted the safety and value of yeast biomass grown on a petrochemical (alkane) substrate as an input to animal feeds. However, animals grown on bioprotein would eventually be eaten by people and BP did not include the perceptions of Italian meat consumers as part of their reference market and did not anticipate that these meat consumers would repudiate (or would be persuaded to repudiate) meat from animals fed with their product. The situation became especially complex because BP had to contend with a powerful consumer-interest lobby (with mysterious sources of funds) which successfully paralysed the Italian state bodies responsible for approving production of the BP products through claims that bioproteins were toxic. In effect BP were engaged in a battle to shape consumers' perceptions of their product, which they lost. Against them was a prior low level of public trust in foreign-owned companies' activities, the result of several notorious disasters like that at Seveso, and a press consistently hostile to the attempt to derive what would ultimately be human food from crude oil. Reliance on a tightly defined reference market with precise needs proved of little use once these consumer groups succeeded in undermining public confidence in the technology and the regulatory regime provided by the state. The Ranks Hovis project began in the 1960s with the idea that the product would be a dried, powdered protein food supplement for Third World populations. The loss of Iranian government interest and of chemical firm project partners able to scale up such a process led to a rethinking of the reference market. Now the First World consumer's perception of 'meat' would act as a reference market for the innovatory market concept. Key requirements for the product that would become known as ' Q u o m ' were that it would be fresh, not dried and that it should have
texture deriving from the structure of the food rather than a manufacturing process. The R & D department developed a process which enabled the extraction of cell nucleic acids while retaining the texture derived from the filamentous nature of the fungus, which simulated the texture of muscle fibres when eaten. This was long term development and it occurred without the firm having confidence that it could capture an income stream from a commercial product. This occurred in the 1980s, when a match could be made between the fungus' nutritional characteristics and the developing market for health foods. The fungus had only polyunsaturated fats, not saturated, it was low in calories and contained no cholesterol - unlike meat. With the expectation that some meat consumers would be prepared to switch consumption to a 'healthy' alternative to meat, while continuing to want meat product characteristics, full commercialisation of the product began. In this case a prior company understanding of why consumers enjoyed meat comprised the reference market concept which set a major R & D objective; when achieved it would be embodied in the Quorn production process. Committed to commercialisation, Ranks were aware of the BP problems in Italy and according to the marketing manager, actively prepared for the problems that might ensue should anyone begin querying the health characteristics of Quom through identifying its source as ICI's major chemical manufacturing site at Middlesbrough. A major perception-moulding campaign was developed to prepare the market for Quorn products. So in the marketing of the first product, the 'Savoury Pie', there was no allusion to the fact that the organism had only been eaten by human beings experimentally. 'Novelty' was not a characteristic Ranks wished to associate with their novel food product. So the filamentous fungus on which the product was based was referred to on packaging as a ' member of the mushroom family', because the common English usage of mushroom includes all fungi. All these examples show marketing as the process of preparing and shaping user perceptions. In these examples not just project, finn and industry-specific knowledge was drawn upon to establish the innovation market concept. A general understanding of the future evolution of bulk protein
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prices was an essential element of the innovation market concept for projects aimed at the animal feed market. Firms reasoned that Third World governments would begin to switch their soya crops from export to feed growing local populations. There would follow a sharp rise in world protein prices and shortages of animal feed in First World countries: the future market for new fermented protein feeds was assured, in the long run. Senior management belief in the validity of this scenario gave them confidence in the novel feed projects. Unfortunately, by the mid-1970s the market had not materialised; food shortages rather than protein shortages were identified as a future problem and these failed in any case to materialise quickly because of the 'green revolution'. Even where local food shortages occurred, Third World governments did not divert export crops to feed local populations. Socio-political expectations were built into the innovation market concept for novel feed products. These rationales may have unravelled but they were critical in generating the projects, and once projects had begun firms attempted to maintain some kind of technology-market 'match' by changing both technology and market concepts; all the firms altered market concepts during their projects. Of course production technology was more difficult to change the closer the project was to beginning commercial production. Eventually all the projects which had built large capacity plants dependent on bulk protein prices would be closed (the Ranks Hovis Quorn project survived because the market concept was not bulk protein price-dependent). ICI's reaction to the rise in their methanol feedstock price in 1979 was to intensively research and reconstruct their market concept, before eventually acknowledging defeat in the mid-1980s. For a time the plant was operated in 'campaigns' to produce Pruteen for the relatively small, but high value-added veal calf milk-replacer market. In the mid-1970s ICI had considered building a smaller plant, dedicated to this market alone; had they done so they might still be making Pruteen. That particular technologymarket match was not made, for reasons concerning ICI chemical engineers' perceptions of what constituted a cost-effective scale of plant (see Howelis, 1989). However, when they were caught with a high
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capacity plant for whose output there was only a limited niche market, an intensive search for additional high value-added markets was launched. The company had considered food markets, and for a time researched a technology-market match, but early in the project became committed to bulk feed markets. Now there was a return to food market concepts, but with a technology developed for another innovatory market concept. For a few years ICI thought Pruteen could be broken into two fractions, cell nucleic acids and the remaining proteinaceous biomass. The first could be sold to the Japanese because they had a shortage of such products as inputs to their soya sauce industry, the second could be further broken into food additives; gelling, foaming and stiffening agents for prepared food products. Though the firm thought this highly elaborate market concept viable, the Japanese eventually pulled out of negotiations; without the nucleic acid market the proteinaceous biomass niche markets were unviable. Shortly after the Pruteen project was closed. BP had also researched similar niche food markets for its protein product, but in response to a company-wide strategy of diversification in the 1960s. Their reaction to the oil price hike of 1973 was to attempt to license the technology they had developed to hydrocarbon-producing countries, where it might still be profitable. This was made difficult because they needed to show potential licensees that the technology worked by operating their new Italian plant. The problem was the absolute refusal of the Italian authorities to license production at the plant, even if the product was not sold into the Italian market. BP waited two years in an attempt to gain such permission, but eventually lost patience, closed the plant and ended involvement in biotechnology. 7. EFTPOS networks
The value of the reference and innovation market concepts for making sense of the technology-market matching process is not confined to early biotechnology. In particular, they can be seen to aid our understanding of the UK banking industry's design and implementation of an IT network for EFTPOS (Electronic Funds Transfer at the Point of Sale) (Howells and Hine, 1993).
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The banks intended EFTPOS to lower the costs of paper-based money transmission, especially the costs of processing cheques and this core intended use remained throughout the project. However, the precise design of the network changed repeatedly. This was essentially because although EFTPOS began as a collectively supported effort to rationalise money transmission processes, the design was ultimately shaped by the desire of some banks to develop strong inter-bank competition. With this changing pattern of bank alliances around different designs, a problem was the use of a variety of reference markets. The first reference market concept was the use of the established automatic teller machine (ATM) network to inform design of EFTPOS. It is fair to say that for a time this reference market w a s the innovation market concept; many patterns of ATM use were transferred directly to Eb-TPOS design. So at one stage it was thought that consumers should use personal identification numbers (PINs) to authenticate transactions in retailing premises, that these transactions would be processed almost wholly online, that security in the network would be provided through encryption, that the means of encryption should be the Data Encryption Standard (DES) algorithm and that this algorithm should be implemented in the same way as in the ATM network. All of these design features were justified by the assumption that the patterns of use of the EFTPOS network would be similar to the use of the ATM networks. All of these design features were abandoned by the time the E V H ~ S network which supports the current Switch debit card was built. Unlike the ATM network, there were at least two groups of users for EFTPOS, consumers and retailers, three groups if the banks themselves are included. The background to abandonment was increasing competition between banks which increased the power of retailers to influence EFTPOS design. So elements of use which suited the banks but not the retailers were dropped; these included a high percentage of on-line processing, transaction floor limits linked to credit worthiness of bank customers rather than type and volume of retailer transactions and the use of PINs at the point of sale. The reference market for retailers was customer use of the point of sale, which they wished should not be made
more difficult, complex or slower by the banks' EFTPOS design. One could argue that the banks attempted to wilfully ignore the EFTPOS requirements of retailers and that retailers' expressed needs should have been their reference market. But EFI'POS concerned two oligopolistic industries where the power balance over the design of the point of sale was not a foregone conclusion - in other European countries, for example Denmark, banks succeeded in imposing their vision of EFTPOS, designed to suit their needs as 'internal consumers'. So one can conclude that alternative reference markets existed and that until the uncertainty over who had power over the point of sale was resolved there was also uncertainty over which set of use concepts would be built into UK EFTPOS. This is a complicated case, but it vindicates the reworked concepts for innovation. It is difficult to see how common-usage concepts could be applied to it; the market comprised three groups of users and the social entity controlling network design was a coalition of groups that kept changing. There was never a single, persistent and identifiable reference market or innovatory market concept that could support a single, precise design, independent of a struggle for power.
8. U s e r as innovator and split agency
The argument has been developed from the innovation studies literature, but it is applicable to other treatments of the market-technology relationship. It will be argued that these vary principally in how they assume the agency for innovation is split between firms and that certain kinds of split tend to support better the use of terms like 'need'. Although the firm is the social agent of innovation that does not mean that a single firm must be the innovator; the agent's role may be split in various ways between firms. In the interesting case where the 'user' of an innovation is another firm it may be possible for that user to be an actor to some degree in the process of innovation. This case is covered in the new product development literature, where Souder recognises in his Customer Developer Condition model that users vary in their ability to recog-
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nise their own 'needs' and their ability to express them, perhaps even in as detailed a form as a product specification (Souder, 1987). One could argue that in recognising their own needs these firms are adopting some of the role of innovating agency; they understand something of the capability of the developer firm and its potential role in changing their own practices. In this case of 'sophisticated user' Souder argues that the developer firm's marketing department has little or no role. On the other hand, for the more usual case where users are unable or less able to articulate their own 'needs', (certainly true of mass markets) the marketing department of the developer must be more or less sophisticated and may attempt to compensate for user inabilities by (in my terms) active development of reference and innovatory market concepts. In Souder's model then, the activity of explicitly identifying 'needs' (patterns of use from which to develop an intended use) must occur somewhere, but to an extent may be split between user and developer finns. Von Hippel has shown that the sources of innovation can vary even more than in Souder's model and in addition that the relative contribution to innovation appears to vary by industrial sector; in four cases of scientific instrument development he found that users (in these cases scientists working in universities) were also the developers in 77% of the 111 innovations studied (yon Hippel, 1988, p. 13). In these cases not only the innovation stage of identifying need, but also the research and development of prototypes is conducted by users. Von Hippel therefore feels able to challenge what he calls the received wisdom, that product manufacturers are typically the developers of product innovations; for von Hippel, the user is the innovator for the case of scientific instruments. However, yon Hippel defines 'first innovator' as whoever first develops a later-commercialised innovation - in contrast to the common definition of innovator as whoever first brings a product to market. With the latter definition, even in scientific instruments the principal innovator would remain the manufacturer. In any case there is great economic importance in the stage of innovation which consists of designing a production process, scaling up production, reducing production costs and actively marketing the product - even if this is less so in scientific
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instruments, which is not certain. Perhaps this is to cavil; yon Hippel certainly demonstrates that the location of essential parts of the new product development process may be outside the manufacturing firm. But von Hippel's examples of user-dominated innovation processes (others are semiconductor and printed circuit board assembly processes) are just another version of Souder's sophisticated user scenario, except that even more 'typical' functions of the developer are now performed by the user. It might be argued that the case of scientific instruments is an unusual one, because by definition these users have developer abilities. However, it is easy enough to think of other ways in which the innovation activities are split between, or are integrated into firms; individual firms innovate for their own purposes, individual entrepreneurs innovate 7 and complex alliances of agencies may form around the innovatory concept, as in Molina's socio-technical constituencies (Molina, 1990). All these examples demonstrate that the agency for innovation may be split in many ways. There is no reason why such variation in the organisational location of innovation activities should change the fundamental socio-cognitive process of innovation and associated concepts discussed in this paper. The discussion rather strengthens the value of these concepts, for where the user takes on part of the role of innovator it becomes even more extraordinary to think of technology push and market pull as opposites; the prospective user both understands an existing pattern of use and can conceptualise an intended use. In such cases, user-expressed 'intended use' may often be treated as real 'need' in advance of the commercialisation of a new product, because there is less of an organisational division between developer and user, source of much innovation failure. In short, where users possess developer abilities, the organisational location of parts of the innovation process is changed, but not the process itself; nor is the critique of market demand/technology push. Such users have some ability to analyse their own patterns of use and construct 'intended uses', but most often the intended use is still embodied in
7 An excellent example is the revisionist account o f Eli Whirney's innovation of the cotton gin in Basalla (1988).
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production technology by another developer or manufacturing firm. Whatever the division of agency, the object remains generation and then synthesis of knowledge in pursuit of the innovatory market concept.
9. Conclusions - the ' m a r k e t ' for innovation
This paper began with Mowery and Rosenberg's review of innovation survey research and their criticism of the vagueness of terms such as 'technology push' and 'market pull'. The location of intention in the firm and a definition of 'needs' and 'use' enables a more precise discussion of the relationship between technology and market in the process of innovation. In particular the idea of the market has been reworked. In innovation the market is not a social agency, but it is a rich and complex source of proven uses with associated values, some of which the firm selects to build its innovation market concept. This concept is an assembly of 'ideas of use' which guides the development of new production technology so that the 'intended use' of innovatory products matches the selected, existing uses of the market concept. In this selection process there may be a 'reference market' which provides most of the guiding 'use-values' for innovation, but as the examples showed, criteria of use may also be drawn from the R & D department, firm experience and market research. Innovation depicted here is an essentially qualitative and socio-cognitive process.
10. Novelty and the m a r k e t concept
Mowery and Rosenberg note in their review paper that the most radical (successful) innovations were recognised to be least associated with market pull, however that was defined by different authors, and that this was a further argument against the primacy of market pull in innovation. Greater novelty can be understood within the socio-cognitive approach as a more innovative combination of use concepts, which implies less dependence on a reference market concept. There is still an innovation market concept assembled from use concepts and these still derive from existing use patterns, but their novelty lies in their synthesis. As
argued elsewhere (Howells, 1995) this avoids the need for genius or intuitive leaps which spontaneously generate novelty. Instead, novelty is most often in the eye of the beholder, because the beholder is unable to appreciate the origins of the ideas that, now recombined, have created an artefact that has leapt finn or industry boundaries. The argument that novelty is often more in the particular synthesis of existing ideas and the transfer of new syntheses into new areas of the economy is found elsewhere, for example in Basalla's work on the history of technology (Basalla, 1988). What is not found in Basalla is the possibility that the process may have an organisational context and may therefore be susceptible to management.
11. Policy implications - firm and state
Recognition is widespread that innovation involves a synthesis of knowledge, knowledge that is usually functionally organised within the firm and of course to an extent sited outside the firm in the form of patterns of product use. In a range of different sectors writers have advocated a similar variety of organisational devices intended to facilitate the exchange of specialist knowledge in the interests of innovation. So Skyrme has listed devices like job rotation and joint steering groups that can break down the severe distinction between commercial and IT expertise in organisations (Skyrme, 1992). Effective management across functional boundaries has been identified as a source of Japanese competitive advantage in the car industry (for example, Womack et al., 1990). Souder has written extensively on the R & D / m a r k e t i n g interface, documented its role in poor quality innovation and suggested mechanisms for facilitating these departments' cooperation and exchange of knowledge (Souder, 1987; Moenaert et al., 1994). It would seem that one of the firm's dilemmas in innovation is the simultaneous development of specialist knowledge groups that can yet cooperate in the process of synthesising knowledge for innovation. If there is a general tendency here, it is towards the active management of expertise in the interests of better innovation, whether the synthesis is between business and IT knowledge, or R & D and marketing knowledge.
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At the beginning of this paper it was noted that Mowery and Rosenberg showed that survey research on innovation did not support 'laisser innover', the policy that innovation 'should be left to the market'. For these authors, this conclusion justified the alternative policy concern with the 'supply side'. Just as this paper has been concerned with basic definitions that break the false opposition of the market pull/technology push debate, so it can be argued that there is a false policy dichotomy associated with that debate. The policy conclusions that follow from this paper are different in language and different in nature, and there is no such apparently stark choice as between supply-side policies and laisser innover. This paper makes much of the simple point that the firm is the social agency that specialises in innovation. That being so, the firm should be left to manage the precise form of the technology-market match and the concomitant uncertainty of success in innovation. The same simple point leads to a natural policy concern with both the firm's ability and incentive to innovate. This might include a concern for what are usually termed innovation supply-side factors (such as the number of engineers available for employment etc.), but if 'supply side' is restricted to the provision of inputs to firms in which incentives and abilities are assumed unproblematic, the term is restrictive and perhaps better not used. Nor is this policy a version of laissez innover, of leaving innovation to the market, since this usually implies not only non-interference in the technology-market match but non-interference in producers' abilities and incentives. There should be room for institutional policies: policies on competition, financial and legal institutions, for these more obviously shape the firm's incentive to innovate, as well as its ability. But the elaboration of a full policy framework compatible with this reconceptualised market-technology relationship is perhaps best left to another paper.
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