Friday, June 1, 2012

Technology Races: To the Victor belong the Spoils

J.P. Eggers just published an article that looks at the outcome of the technology race between LCD (liquid crystal display) and plasma display technology in the flat screen market. We know the broad story of how the market has developed over time: both technologies were tried initially, then LCD became dominant, and then the tables turned so that plasma is now resurgent. What the paper adds is an interesting take on what happened to each firm. It is useful knowledge for managers interested in how to place bets on competing technologies, and it also tells a lot about how organizations make decisions.

Firms that bet only on plasma early on did more poorly in the technology race as LCD became dominant, as one would expect from them having bet on the wrong technology. Firms that developed both technologies at once also did more poorly than those that bet on LCD only, again a reasonable result given that specialization is better if it is in the right decision. But here is the big surprise: when plasma re-emerged as the better technology later, the firms that entered with plasma technology initially still did worse than those that entered with LCD.

How is that possible? If knowledge stays in the firm, they should have been able to use the early investment to recover. But what seems to have happened is that managers learnt too much from the initial negative experience with plasma. Not only did they learn that plasma was the wrong choice early on, but the experience of placing the bet on plasma created greater skepticism either against that technology (even as it improved), or even against the effectiveness of research and development in general. Clearly they were over-learning from this experience, and that held back the firm technology development.

The disturbing lesson is that choosing the right technology has consequences beyond the first technology generation, but it is still necessary to do so before the advantages are known (late entrants also did poorly). So the spoils really belonged to the victors, who not only enjoyed LCD dominance but were also able to change to plasma with greater ease than the original plasma firms.  

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