Read patterns not scanned.pdf    (8 pages), and answer the following questions: 

What are the characteristics of well-established products such as paper, steel, and light bulbs?
What are the characteristics of “new products” that require the re-orientation of corporate goals?
What type of innovations are the light bulbs, automobiles, and semiconductors today? 
Describe Exhibit one in the article.

Page 1

Patterns of Industrial

William J. Abernathy and James M. Utterback

How does a company’s innovation-and its response to

innovative ideas-change as the company grows and

matures? Are there circumstances in which a pattern

generally associated with successful innovation is in

fact more likely to be associated with failure? Under

what circumstances will newly available technology,

rather than the market, be the critical stimulus for

change! When is concentration on incremental

innovation and productivity gains likely to be of

maximum value to a firm? In what situations does this

strategy instead cause instability and potential for crisis

in an organization?

Intrigued by questions such as these, we have examined

how the kinds of innovations attempted by productive

units apparently change as these units evolve. Our goal

was a model relating patterns of innovation within a

unit to that unit’s competitive strategy, production

capabilities, and organizational characteristics.

This article summarizes our work and presents the basic

characteristics of the model to which it has led us. We

conclude that a productive unit’s capacity for and

methods of innovation depend critically on its stage of

evolution from a small technology-based enterprise to

a major high-volume producer. Many characteristics of

innovation and the innovative process correlate with

such a historical analysis, and on the basis of our model

we can now attempt answers to questions such as

those above.


Past studies of innovation imply that any innovating

unit cs most of its innovations as new products. But

that observation masks an essential difference: what

constitutes a product innovation by a small,

technology-based unit is often the process equipment

adopted by a large unit to

improve its high-volume production of a standard

product. We argue that these two units-the small,

entrepreneurial organizations and the larger unit

producing standard products in high volume- are at

opposite ends of a spectrum. in a sense forming

boundary conditions in the evolution of a unit and in

the character of its innovation of product and process


One distinctive pattern of technological innovation is

evident in the case of established, high-volume

products such as incandescent light bulbs, paper, steel,

standard chemicals, and internal-combustion engines,

for examples.

The markets for such goods are well defined; the

product characteristics arc well understood and often

standardized; unit profit margins are typically low;

production technology is efficient, equipment intensive

and specialized primarily on the basis of price. Change

is costly in such highly integrated systems because an

alteration in any one attribute or process has

ramifications for many others.

In this environment innovation is typically incremental

in nature, and it has a gradual, cumulative effect on

productivity. For example, Samuel Hollander has

shown that more than half of the reduction in the cost

of producing rayon in plants of E. I. du Pont de

Nemours and Company has been the result of gradual

process improvements which could not be identified as

formal projects or changes. A similar study by John

Enos shows that accumulating incremental

developments in petroleum refining processes resulted

in productivity gains which often eclipsed the gain from

the original innovation. Incremental innovations, such

as the use of larger railroad cars and unit trains, have

resulted in dramatic reductions in the cost of moving

large quantities of materials by rail. In all these

examples, major systems innovations have been

followed by countless minor product and systems

improvements, and the latter account for more than

half of the total ultimate economic gain due to their

much greater number. While cost reduction seems to

have been the major incentive for most of these

innovations, major advances in performance have also

resulted from such small engineering and production


Page 2

Such incremental innovation typically results in an

increasingly specialized system in which economies of

scale in production and the development of mass

markets are extremely important. The productive unit

loses its flexibility, becoming increasingly dependent

on high-volume production to cover its fixed costs and

increasingly vulnerable to changed demand and

technical obsolescence.

Major new products do not seem to be consistent with

this pattern of incremental change. New products

which require reorientation of corporate goals or

production facilities tend to originate outside

organizations devoted to a “specific” production

system; or. if originated within, to be rejected by them.

A more fluid pattern of product change is associated

with the identification of an emerging need or a new

way to meet an existing need; it is an entrepreneurial


Many studies suggest that such new product

innovations share common traits. They occur in

disproportionate numbers in companies and units

located in or near affluent markets with strong science-

based universities or

other research institutions and entrepreneurially

oriented financial institutions. Their competitive

advantage over predecessor products is based on

superior functional performance rather than lower

initial cost, and so these radical innovations tend to

offer higher unit profit margins.

When a major product innovation first appears,

performance criteria are typically vague and little

under- stood. Because they have a more intimate

understanding of performance requirements, users

may play a major role in suggesting the ultimate form

of the innovation as well as the need. For example,

Kenneth Knight shows that three-quarters of the

computer models which emerged between 1944 and

1950, usually those produced as one or two of a kind,

were developed by users.

It is reasonable that the diversity and uncertainty of

performance requirements for new products give an

ad- vantage in their innovation to small, adaptable

organizations with flexible technical approaches and

good external communications, and historical evidence

supports that hypothesis. For example, John Tilton

argues that new enterprises led in the application of

semiconductor technology, often transferring into

practice technology from more established firms and

laboratories. He argues that economies of scale have

not been of prime importance because products have

changed so rapidly that production technology

designed for a particular product is rapidly made

obsolete. And R. 0. Schlaifer and S.D. Heron have

argued that a diverse and responsive group of

enterprises struggling against established units to enter

the industry contributed greatly to the early advances

in jet aircraft engines.



These two patterns of innovation may be taken to

represent extreme types-in one case involving

incremental change to a rigid, efficient production

system specifically designed to produce a standardized

product, and in the other case involving radical

innovation with product characteristics in flux. In fact,

they are not rigid, independent categories. Several

examples will make it clear that organizations currently

considered in the “specific” category-where

incremental innovation is now motivated by cost

reduction-were at their origin small, “fluid” unit’s

intent on new product innovation.

John Tilton’s study of developments in the

semiconductor industry from 1950 through 1968

indicates that the rate of major innovation has

decreased and that the type of innovation shifted.

Eight of the 13 product innovations he considers

having been most important during that period

occurred within the first 7 years, while the industry

was making less than 5 percent of its total 18-ycar

sales. Two types of enterprise can be identified in this

early period of the new industry-established units that

came into semiconductors from vested positions in

vacuum tube markets and new entries such as Fairchild

Semiconductor, IBM, and Texas Instruments, Inc. The

Page 3

established units responded to competition from the

newcomers by emphasizing process innovations.

Meanwhile, the latter sought entry and strength

through product innovation. The three very successful

new entrants just listed were responsible for half of the

major product innovations and only one of the nine

process innovations which Dr. Tilton identified in that

18-year period, while three principal established units

(divisions of General Electric, Philco, and RCA) made

only one-quarter of the product innovations but three

of the nine major process innovations in the same

period. In this case, process in- novation did not prove

to be an effective competitive stance; by 1966, the

three established units together held only 18 percent of

the market while the three new units held 42 percent.

Since 1968, however, the basis of competition in the

industry has changed; as costs and productivity have

become more important, the rate of major product

innovation has decreased, and effective process

innovation has become an important factor in

competitive success. For example, by 1973 Texas

Instruments, which had been a flexible. new entrant in

the industry two decades earlier and had contributed

no major process innovations prior to 1968, was

planning a single machine that would produce 4 percent

of world requirements for its integrated-circuit unit.

Like the transistor in the electronics industry, the DC-3

stands out as a major change in the aircraft and airlines

industries. Almarin Phillips has shown that the DC-3

was in fact a cumulation of prior innovations. It was

not the largest, or fastest, or longest-range aircraft it

was the most economical large, fast plane able to Oy

long distances. All the features which made this design

so completely successful had been introduced and

proven in prior aircraft. And the DC-3 was essentially

the first commercial product of an entering firm (the

C1 and DC-2 were produced by Douglas only in small


Just as the transistor put the electronics industry on a

new plateau, so the DC-3 changed the character of

innovation in the aircraft industry for the next 15 years.

No major innovations were introduced into commercial

air- craft design from 1936 until new jet powered

aircraft appeared in the 1950s. Instead, there were

simply many refinements to the DC-3 concept

stretching the design and adding appointments; and

during the period of these incremental changes, airline

operating cost per passenger-mile dropped an

additional 50 percent.

The electric light bulb also has a history of a long series

of evolutionary improvements which started with a

few major innovations; and ended in a highly

standardized commodity like product. By 1909, the

initial tungsten filament and vacuum bulb innovations

were in place; from then until 1955 there came a series

of incremental changes- better metal alloys for the

filament, the use of “getters” to assist in exhausting

the bulb, coiling the filaments, ”frosting” the glass, and

many more. In the same period, the price of a 60-watt

bulb decreased (even with no inflation adjustment)

from S1.60 to 20 cents each, the lumens output

increased by 175 percent, the direct labor content was

reduced more than an order of magnitude, from 3 to

0.18 minutes per bulb, and the pro- duction process

evolved from a flexible job shop configuration,

involving more than 11 separate operations and a

heavy reliance on the skills of manual labor, to a single

machine attended by a few workers.

Product and process evolved in a similar fashion the

automobile industry. During a four-year trend period

before Henry Ford produced the renowned Model T,

his company developed, produced, and sold five

engines, ranging from two to six cylinders. These made

in a factory that was flexibly organized much as job

shop. relying on trade craftsmen working with general

purpose machine tools not nearly so advanced as the

best then available. Each engine tested a new concept.

Out of this experience came a dominant design-the

Model T; and within 15 years, 2 million engines of this

single basic design were being produced each year

(about 15 million all told) in a facility then recognized

as the most efficient and highly integrated in the

world. During that 15-year period, there were

incremental-but no fundamental-innovations in the

Ford product.

Page 4

In yet another case, Robert Buzzell and Robert Nourse.

tracing innovations in processed foods, show that new

products such as soluble coffees, frozen vegetables.

dry pet foods, cold breakfast cereals, canned foods,

and precooked rice came first from individuals and

small organizations where research was in progress, or

which relied heavily upon information from users. As

each product won acceptance, its productive unit

increased in size and concentrated its innovation on

improving manufacturing. marketing, and distribution

methods which extended rather than replaced the

basic technologies. The major source of the latter ideas

is now each firm’s own research and development


The shift from radical to evolutionary product

innovation is a common thread in these examples. It is

related to the development of a dominant product

design. and it is accompanied by heightened price

competition and increased emphasis on process

innovation. Small-scale units that are flexible and

highly reliant on manual labor and craft skills utilizing

general-purpose equipment develop into units that

rely on automated. equipment intensive high-volume

processes. We conclude that changes in innovative

pattern, production process. and scale and kind of

production capacity all occur together in a consistent,

predictable way.

Though many observers emphasize new product in-

novation, process and incremental innovations may

have equal or even greater commercial importance. A

high rate of productivity improvement is associated

with process improvement in every case we have

studied. The cost of incandescent light bulbs. for

example, has fallen more than 80 percent since their

introduction. Airline operating costs were cut by half

through the development and improvement of the

DC3. Semiconductor prices have been falling by 20 to

30 percent with each doubling of cumulative

production. The introduction of the Model T Ford

resulted in a price reduction from $3,000 to less than

$1,000 (in 1958 dollars). Similar dramatic reductions

have been achieved in the costs of computer core

memory and television picture tubes.


If it is true that the nature and goals of an industrial

unit’s innovations change as that unit matures from

pioneering to large-scale producer, what does this

imply for the management of technology?

We believe that some significant managerial concepts

emerge from our analysis- or model. if you will- of the

characteristics of innovation as production processes

and primary competitive issues differ. As a unit moves

toward large-scale production, the goals of its

innovations change from ill-defined and uncertain

targets to well-articulated design objectives. In the

early stages. there is a proliferation of product

performance requirements and design criteria which

frequently cannot be stated quantitatively. and their

relative importance or ranking may be quite unstable.

It is precisely under such conditions, where

performance requirements are ambiguous, that users

are most likely to produce an innovation and where

manufacturers are least likely to do so. One way of

viewing regulatory constraints such as those governing

auto emissions or safety is that they add new

performance dimensions to be resolved by the

engineer- and so may lead to more innovative design

improvements. They are also likely to open market

opportunities for innovative change of the kind

characteristic of fluid enterprises in areas such as

instrumentation, components, process equipment, and

so on.

The stimulus for innovation changes as a unit matures.

In the initial fluid stage. market needs are ill defined

and can be stated only with broad uncertainty. and the

relevant technologies are as yet little explored. So,

there are two sources of ambiguity about the

relevance of any particular program of research and

development – target uncertainty and technical

uncertainty. Confronted with both types of

uncertainty, the decision maker has little incentive for

major investments in formal research and


As the enterprise develops. however. uncertainty about

markets and appropriate targets is reduced, and larger

research and development investments are justified. At

Page 5

some point before the increasing specialization of the

unit makes the cost of implementing technological

innovations prohibitively high and before increasing

cost competition erodes profit with which to fund large

indirect expenses, the benefits of research and

development efforts would reach a maximum.

Technological opportunities for improvements and

additions to existing product lines will then be clear,

and a strong commitment to research and

development will be characteristic of productive units

in the middle stages of development. Such firms will be

seen as “science based” because they invest heavily in

formal research and engineering departments. with

emphasis on process; innovation and product

differentiation through functional improvements.

Although data on research and development

expenditures are not readily available on the basis of

productive units, divisions, or lines of business, an

informal review of the activities of corporations with

large investments in research and development shows

that they tend to sup- port business lines that fall

neither near the fluid nor the specific conditions but

are in the technologically active middle range. Such

productive units tend to be large, to be integrated, and

to have a large share of their markets.

A small, fluid entrepreneurial unit requires general-

purpose process equipment which, typically, is

purchased. As it develops, such a unit is expected to

originate some process-equipment innovations for its

own use; and when it is fully matured, its entire

processes are likely to have designed us integrated

systems specific to particular products. Since the

mature firm is now fully specialized, all its major

process innovations are likely to originate outside the


But note that the supplier companies will now see

themselves as making product-not process

innovations. From a different perspective, George

Stigler finds stages of development-similar to those we

describe- in firms that supply production-process

equipment. They differ in the market structure they

face. in the specialization of their production

processes, and in the responsibilities they must accept

in innovating to satisfy their own needs for process

technology and materials.

The organization’s method of coordination and control

change with the increasing standardization of its

products and production processes. As task uncertainty

confronts a productive unit early in its development,

the unit must emphasize its capacity to process

information by investing in vertical and lateral

information systems and in liaison and project groups.

Later, there may be extended to the creation of formal

planning groups, organizational manifestations of

movement from a product- oriented to a transitional

state; controls for regulating process functions and

management controls such as job procedures, job

descriptions, and systems analyses are also extended

to become a more pervasive feature of the production


As a productive unit achieves standardized products

and confronts only incremental change, one would

expect it to deal with complexity by reducing the need

for information processing. The level at which

technological change takes place helps to determine

the extent to which organizational dislocations take

place. Each of these hypotheses helps to explain the

firm’s impetus to divide into homogeneous productive

units as its products and process technology evolve.

The hypothesized changes in control and coordination

imply that the structure of the organization will also

change as it matures, becoming more formal and

having a greater number of levels of authority. The

evidence is strong that such structural change is a

characteristic of many enterprises and of units within




Assuming the validity of this model for the development

of the innovative capacities of a productive unit, how

can it be applied to further our capacity for new

products and to improve our productivity?

We predict that units in different stages of evolution

will respond to differing stimuli and undertake

Page 6

different types of innovation. This idea can readily be

extended to the question of barriers to innovation and

probably to patterns of success and failure in

innovation for units in different situations. The unmet

conditions for transition can be viewed as specific

barriers which must be over- come if transition is to

take place.

We would expect new, fluid units to view as barriers

any factors that impede product standardization and

market aggregation, while firms in the opposite

category tend to rank uncertainty over government

regulation or vulnerability of existing investments as

more important disruptive factors. Those who would

promote innovation and productivity in U.S. industry

may find this suggestive.

We believe the most useful insights provided by the

model apply to production processes in which features

of the products can be varied. The most interesting

applications arc to situations where product innovation

is competitively important and difficult to manage; the

model helps to identify the full range of other issues

with which the firm is simultaneously confronted in a

period of growth and change. (See Exhibit 1.)


Many examples of unsuccessful innovations point to a

common explanation of failure: certain conditions

necessary to support a sought-after technical advance

were not present. In such cases, our model may be

helpful because it describes conditions that normally

support advances at each stage of development;

accordingly, if we can compare existing conditions with

those prescribed by the model, we may discover how

to increase innovative success. For example, we may

ask of the model such questions as these about

different, apparently independent, managerial actions:

• Can a firm increase the variety and diversity of

its product line while simultaneously realizing the

highest possible level of efficiency?

• Is a high rate of product innovation consistent

with an effort to substantially reduce costs through

extensive backward integration?

• Is government policy to maintain diversified

markets for technologically active industries consistent

a policy that seeks a high rate of effective product


• Would a firm’s action to restructure its work

environment for employees so that tasks are more

challenging and less repetitive be compatible with a

policy of mechanization designed to reduce the need

for labor?

• Can the government stimulate productivity by

forcing a young industry to standardize its products

before a dominant design has been realized?

The model prompts an answer of no to each of these

questions; each question suggests actions which the

model tells us are mutually inconsistent. We believe

that as these ideas are further developed, they can be

equally with effective in helping to answer many far

more subtle questions about the environment for

innovation, productivity, and growth.


XHIBIT 1 The Changing Character of Innovation and

Its Changing Role in Corporate Advance

Seeking to understand the variables that determine

successful strategies lor Innovation, the authors locus

on three stages in the evolution of a successful

Page 7
enterprise: its period of flexibility, in which the

enterprise seeks to capitalize on Its advantages where

they offer greatest advantages; its Intermediate years, in

which major products are used more widely; and its full

maturity, when prosperity Is assured by leadership in

several principal products and technologies.

Competitive emphasis on

innovation stimulated by

Predominant type of


Product line

Production processes




Organizational controls

Fluid pattern

Transitional pattern Specific pattern
Functional product Product variation Cost reduction
information on users, needs Opportunities created by Pressure to reduce cost and
and users, technical inputs expanding internal technical

improve quality

Frequent major changes in

Major process changes

required by rising volume
incremental for product and
process, with cumulative
Improvement in productivity

and quality

Diverse, often Including

custom designs
includes at least one product
design stable enough to have

significant production

Mostly undifferentiated

standard products

Flexible and inefficient;

major changes easily
Becoming more rigid, with

changes occurring in major
Efficient, capital-intensive,

and rigid cost of change

General-purpose, requiring

highly skilled labor
Some subprocesses auto
mated, creating,

Special purpose, mostly

automatic with labor tasks
inputs limited to generally Specialized materials Specialized materials de·
available materials perhaps demanded from manded; if not available,

extensive vertical integration
Small-scale, located near

user or source of
General-purpose with
sections specialized

Large-scale, highly specific

to particular products

informal and

Through liaison relationships,

project, and task groups
Through emphasis on

structural, goals and rules

Page 8

The Unit of Analysis

As we show in this article, innovation within an

established industry is often limited to

incremental improvements of both products

and processes. Major product change is often

introduced from outside an established

industry and is viewed as disruptive; its source

is typically the start-up of a new, small firm,

invasion of markets by leading firms in shape

of the production process is altered.

Thus, the questions raised in this article

require that a product line and its associated

production process be taken together as the

unit of analysis. This we term a productive

unit. For a simple firm or a firm devoted to a

single product, the productive unit and the

firm would be one and the same. In the case of

a diversified firm, a productive unit would

usually report to a single operating manager

and normally be a separate operating division.

The extreme of a highly fragmented

production process might mean that several

separate firms taken together would be a

productive unit.

For example, analysis of change in the textile

industry requires that productive units in the

chemical, plastics, paper, and equipment

industries be included. Analysis involving the

electronics Industry requires a review of the

changing role of component, circuit, and

software producers as they become more

crucial to change in the final assembled

product. Major change at one level works its

way up and down the chain, because of the

interdependence of product and process

change within and among productive units.

Knowledge of the production process as a

system of linked productive units is a

prerequisite to understanding innovation in an

industrial context

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