innovation adoption and the product life cycle

246 Pages·2015·19.81 MB·English

INNOVATION ADOPTION
AND
THE PRODUCT LIFE CYCLE
Charlie Karlsson
Umeå Economic Studies No. 185
UNIVERSITY OF UMEÅ 1988

INNOVATION ADOPTION
AND
THE PRODUCT LIFE CYCLE
Charlie Karlsson
AKADEMISK AVHANDLING
som för avläggande av ekonomie doktorsexamen
vid samhällsvetenskapliga fakulteten vid Umeå universitet
framlägges till offentlig granskning
torsdagen den 6 oktober 1988 kl 13.00
i hörsal C, samhällsvetarhuset.

INNOVATION ADOPTION
AND
THE PRODUCT LIFE CYCLE
Charlie Karlsson
Umeå Economic Studies No. 185
UNIVERSITY OF UMEÅ 1988
*The research that is reported here and which is the result of a co-operation between the
Regional Science Research Unit at the University of Karlstad and CERUM has been
supported financially chiefly by The Bank of Sweden Tercentenary Foundation (Grant
Dnr 84/266).
Author and title
Karlsson, Charlie (1988). Innovation Adoption and the Product Life Cycle. Umeå
Economic Studies No. 185, 232 pages.
Abstract
The objective of the study is to present a number of hypotheses concerning (i) the adoption of innovations
for product and process development within enterprises (establishments), (ii) the spatial diffusion of
innovations, and (iii) the adoption of applications of information technology to automate the production
processes within enterprises (establishments), and to test these hypotheses empirically by means of
econometric methods, using a data base containing primary data from several regions in Sweden on the
adoption of different applications of information technology at the establishment level. The study has two
main parts; the theoretical foundation and the empirical results.
In the theoretical part of the study product and process development by means of new innovations is
discussed within the general framework provided by the product life cycle theory. A short survey of some
important theories of innovation diffusion is presented. A conceptual framework for the analysis of the
adoption of innovations for product and process development at the establishment level is also presented.
Based upon the "traditional" theory of production two main aspects of the choice of technique are studied,
namely, (i) choice of technique within the traditional neo-classical framework, and (ii) choice of technique
within a vintage model framework. The vintage model and the product life cycle theory are then used as a
basis for analyses of product and process development. The study also contains an overview of those
characteristics of enterprises that, in the literature, have been associated with an early adoption of
innovations. The results from earlier empirical studies are also surveyed.
The empirical part of the study contains: (i) an analysis of the establishment characteristics associated
with an early adoption of applications of information technology in administration, in production
processes and in products in the engineering industry in two peripheral regions in Sweden, (ii)
comparisons of the influence of different establishment characteristics on product development in two
industries - the machinery industry and the electrical equipment and instruments industries - in one central
and one peripheral region, (iii) a study of the spatial diffusion of applications of information technology
in Sweden based upon a categorization of the different applications on two dimensions: standardization/
non-standardization and low/high complexity, and (iv) a study of how different applications of information
technology might be used to achieve different levels of automation. The empirical results indicate that the
skill profiles and network characteristics of the establishments are important for an early adoption of
applications of information technology for product and process development Applications associated with
non-standardized production and with high or medium complexity seems to be characterized by a
hierarchical diffusion pattem.
Keywords
automation, engineering industry, information networks, information technology,
innovation adoption, innovation diffusion, process development, product development,
product life cycle theory, regional, skills, spatial, vintage models.
Distribution and author's address
Department of Economics, University of Umeå, S-901 87 Umeå, Sweden. Department of
Economics, University of Karlstad, Box 9501, S-650 09 Karlstad, Sweden.
ISSN: 0348-1018 Place of publication: Umeå
ISBN: 91-7174-372-3 Year of publication: 1988
ACKNOWLEDGEMENTS
In the course of my work I have incurred a number of obligations. First and foremost I
should like to thank my supervisor, Professor Börje Johansson, for his careful and
perceptive reading of my work, for his bracing comments and for his patience with my
vagaries.
I have also had the privilege of receiving encouragement and valuable comments and
suggestions during different stages of my work from Professor Åke E. Andersson. I also
wish to thank a number of other persons for their support. In particular, Professor
Lennart Hjalmarsson and Dr Birgitta Juås have given me penetrating comments on this
thesis. Dr Bengt Mattsson has read the whole thesis. I have also had the benefit of
valuable comments and suggestions on parts of the thesis from Dr Ingemar Adolfsson,
Professor Roland Artie, Dr David Batten, Dr Lennart Flood, Mr Bengt Gustavsson,
Professor Anders Klevmarken, Mr Jan Larsson, Mr Thomas Martinsson, Dr Nils-Olov
Stålhammar, Professor Sören Wibe, and Mr Lars Westin. I am also grateful to Dr
Christer Anderstig for his valuable comments and suggestions and also for his direct
cooperation in part of this thesis.
I have also received valuable assistance from my research assistant Mr Jan Larsson, who
has been responsible for the survey that provides the empirical basis and who has
conducted part of the statistical analyses presented here. Dr Michael Cooper has given me
invaluable help in correcting my English and excellent stylistic advice. I am also deeply
grateful to Ms Ingrid Lindqvist for her enthusiastic spirit, the care and speed with which
she has typed out Chapters 1, 6 and 7, and her design and control of the layout of the
thesis. The staff of the University library in Karlstad have provided me with an
outstanding service for which I am very grateful.
I would also like to thank my colleagues in the department of Economics at the University
of Karlstad - Mr Lars-Gustaf Bjurklo, Dr Birgitta Juås, Dr Bengt Mattsson, Mr Bengt
Nordlund and Mr Sture Thompson - for taking full responsibility for all teaching in
economics, while I was writing my thesis.
I also want to thank my wife, Eva, and my children, Ulrika, Martin, Johan, and Linda,
for their loyalty and for enduring a husband and a father who apparently has shown
greater interest in his Macintosh and his manuscripts than in his family.
Lastly, but not least, I want to thank my parents, Emmy and Sven, for realizing that a
small-scale farm with stony fields and pasture could provide no future and for giving me
the opportunity to go to high school in spite of the family's very limited economic
resources.
Karlstad, June 1988
Charlie Karlsson

CONTENTS
Page
1. INTRODUCTION 1
1.1 A General Background 1
1.2 The Purpose of the Study 6
1.3 The Outline of the Study 7
2. PRODUCT LIFE CYCLES, INNOVATION DIFFUSION AND
INNOVATION ADOPTION: A LITERATURE SURVEY 9
2.1 Introduction 9
2.2 Product and Process Development in a Product Life Cycle
Framework 10
2.2.1 Product Development in a Product Life Cycle Framework 11
2.2.1 Process Development in a Product Life Cycle Framework 13
2.2.3 Summary 15
2.3 The Diffusion of Innovations 15
2.3.1 Learning Models of Innovation Diffusion 17
2.3.2 Models of Innovation Diffusion Relying on Differences
between Enterprises 22
2.3.3 Integration of the Supply Side in Models of Innovation
Diffusion 24
2.3.4 Innovation Diffusion: A Summary 25
2.4 The Spatial Diffusion of Innovations 26
2.5 A Conceptual Framework 32
2.5.1 The Adoption Process 33
2.5.2 A Conceptual Framework for Analyzing Product and
Process Development 34
2.5.3 The Role of Suppliers of Machines, Components and
Software in the Adoption of New Techniques 35
2.5.4 Information Networks and the Adoption of New Techniques 37
2.5.5 Human Skills and the Adoption of New Techniques 39
2.6 Principal Conclusions 40
3. THE CHOICE OF TECHNIQUE: SOME STANDARD APPROACHES 43
3.1 Introduction 43
3.1.1 Basic Concepts 43
3.1.2 A Production Function Approach 44
3.1.3 The Plan of the Chapter 46
3.2 Choice of Technique: The Neo-classical Model 46
3.2.1 The Neo-classical Approach to the Choice of Technique 46
3.2.2 Limitations of the Neo-classical Approach 51
3.3 Choice of Technique: The Vintage Model 51
3.3.1 Adoption of New Techniques at the Micro Level 52
3.3.2 The Case with Ex Ante Substitutability and Ex Post Non­
substitutability 54
3.3.3 Embodied versus Disembodied Technological Changes 56
3.3.4 The Vintage Model 57
3.3.5 Salter's Basic Model 59
3.3.6 The Choice of Technique in a Vintage Framework 60
3.3.7 On Economic Efficiency 63
3.4 Summing-up and the Way Ahead 67
4. THE CHOICE OF TECHNIQUE: A PRODUCT LIFE CYCLE
APPROACH 69
4.1 Introduction 69
4.2 The Product Life Cycle: Product vs Process Development 71
4.2.1 The Adoption of New Techniques in Process Development 72
4.2.2 The Adoption of New Techniques in Product Development 73
4.3 Skill Profiles in the Different Phases of the Product Life
Cycle 74
4.3.1 Skills, Learning and New Techniques: The Basic Model 75
4.3.2 The Scrapping Age for a Given Vintage 77
4.3.3 Skill Intensity and Scrapping Age 79
4.3.4 Product Vintages and Product Development 82
4.4 Networks in the Different Phases of the Product Life Cycle 85
4.4.1 Skill-intensity, Networks and Information Lags 86
4.4.2 Network Properties and Production Information 87
4.5 Spatial Conditions for the Different Phases of the Product
Life Cycle 88
4.6 Principal Conclusions 91
5. THE EARLY ADOPTION OF INNOVATIONS: WHO COMES FIRST? 94
5.1 Introduction 94
5.2 Adopter Characteristics: Ad Hoc Considerations in the
Literature 94
5.2.1 The Size of Enterprises 96
5.2.2 The Economic and Financial Characteristics of Enterprises 97
5.2.3 The Human Capital Characteristics of Enterprises 100
5.2.4 The Internal and External Communication Networks
of Enterprises 102
5.2.5 Concluding Comments on Adopter Characteristics 104
5.3 Adopter Characteristics: Empirical Evidence 105
5.4 Statistical Method for Characterizing (Early) Adopters of
New Techniques 107
5.4.1 A Discussion of the Use of Regression Analysis for Simultane­
ously Assessing the Characteristics of (Early) Adopters of
New Techniques 107
5.4.2 Statistical Methods Used in This Study for Characterizing
(Early) Adopters 109
5.5 Adopter Characteristics to be Empirically Investigated in
This Study 111
5.5.1 The Data 112
5.5.2 Skill and Knowledge Variables 112
5.5.3 Network Variables 114
5.5.4 Other Characteristics 117
6. SPEED OF ADOPTION AND CHARACTERISTICS OF EARLY
ADOPTERS 118
6.1 Introduction 118
6.2 The Diffusion Process 118
6.3 Human Skills and the Adoption of IT-Applications 120
6.4 Specialized Information Channels and the Adoption of
IT-Applications 125
6.5 Non-specialized Information Channels and the Adoption
of IT-Applications 127
6.6 Human Skills, Information Channels and the Adoption
of IT-Applications 133