Dennis R. Senik: Chief Technology Strategist Doyletech Corporation (613) 247-0725

Dennis R.
Senik
Chief Technology Strategist
Doyletech Corporation
dennissenik@doyletechcorp.com
(613) 247-0725

1
The Economics of Technology: Doyletech Thought Leadership Seminars
The Model in a Nutshell
Innovative products and services change how we live and work. Their gradual
adoption by markets is driven by three interacting factors that co-evolve in a highly
predictable way.
1. Market needs and wants change.
Value lies in the eye of the beholder: it begins with what products can do;
evolving to include better price, improved 'fit' with society and ease-of-use.
2. Technology advances to make better products.
Products are a 'layer cake' of tangible and intangible parts. The base is the
major device; added subsystems make it easier to use. Better materials,
components and infrastructure further improve value. Design combines it all,
yielding 'step' advances that redefine competition.
3. Industrial Systems adjust to produce, operate and support products.
It takes networks of companies to make products widely available. Linked by
institutional relationships, they are driven by established practices that underpin
'business as usual,' marshaling economic resources in a well-defined pattern.
Success depends on realigning these three shifting value drivers at each step of
market penetration.
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Since its incorporation in 1982, Doyletech Corporation has specialized in advising
clients on how to convert technology into wealth. Those clients have included
governments at all three levels, research institutions, economic development agencies,
entrepreneurs and corporations.
Our team of professionals are all experienced senior managers with backgrounds from
marketing, sales, engineering, management, finance, R&D, HR and educational
institutions.

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This presentation focuses on how economic development officers can harness the
interacting drivers of value creation to generate jobs and growth. Our comprehensive
model, which addresses the broader issue of developing S&T policy to support value
creation, is outlined on p. 20.
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1
Robert Solow won the 1987 Nobel Prize in Economics for demonstrating this.
2
J. Bradford DeLong, University of California, "Cornucopia: ncreasing Wealth in the
Twentieth Century.
o Technology is the practical application of know-how; it creates new industries
like GPS (global positioning system). In turn, their innovative services rewrite
best practice in old industries like farming (precise fertilizer & pesticide
application, yield mapping).
o The context in which new practices introduced by innovative products clash
with the old is culture: the sum of society's established patterns of living and
working.
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The value proposition evolves as new products penetrate deeper into markets.
o Functionality
What does it do for users?
o Price
How much to acquire and maintain?
o Compatibility
How well does it fit with culture's established patterns, practices and institutions?
o Ease-of-Use
What skills does it demand of users?

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o The transition from old to new unfolds in a highly consistent pattern.
o The result is a well-worn path channeled through the openings and
constrained by the obstacles culture presents to all innovation.
o All innovation follows the same route, because the path to full market
penetration is fundamentally a cultural transition.

7
Familiar product and service examples are automobiles and air travel.

8
*CAGR = Compound Annual Growth Rate

As market penetration deepens, innovative products and their value drivers encounter
increasing resistance from the status quo they seek to replace.

1. Value Proposition: products must adapt from the innovative few (1 in 40 users) to
meet the very different demands of the vast majority (more on Slide13).

2. Technology Systems: advances always change the rules of the game but
entrenched thinking hangs on.

3. The Industrial System: established practices and the institutional arrangements
and vested interests that support them grow more rigid with age.

But these closely interlinked value drivers unfold along highly predictable lines.
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The length of each of the five phases depends heavily on the economy and world
events. For example, The Great Depression and World War II combined to hold
back auto sales for nearly twenty years:
o It took until 1988 for autos to fully penetrate markets.
The long view is especially important in S&T policy. Major innovations can take over
three working generations to fully penetrate markets.

10
o The economy determines the growth of innovative products. For example,
commercial air travel is notorious for its ups and downs across the business
cycle.
o Its market penetration (above) clearly reflects the recessions of the early eighties,
nineties, the 2001 attack on the World Trade Towers and the global financial
crisis of 2008.
o In its early years as a luxury good, air travel grew steadily through the Great
Depression.

11

3
As an example, consider the personal computer. Its technology system is a 'layer-cake,'
made from the same five basic ingredients as all products:
o The Major Device:
At the heart of what the system does the CPU
o Supporting Devices:
Help the major device to do its job memory, cooling fan, power supply/regulation, or
Make the whole system (the PC) easier to use printer, monitor, mouse
o Components and materials:
Basic resources from which subsystems are built batteries, circuit boards, connectors
o Design:
Codified ideas that govern and standardize the architecture and operation of technology
systems norms & standards, software languages, Internet communications protocols
o Infrastructure:
The underlying framework and installations that facilitate product use servers, networks,
electrical grid, software engineering
Determines the extent of market penetration and 'enforces' the norms and standards that
govern product use

New products are (nearly) naked major devices. Over time, the other layers of the cake
complete the system in a highly ordered way. nfrastructure is the 'icing' and design is the
yeast that makes the cake rise.
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o Introduction: novel functionality wins the day.
o Lift-Off: is triggered by the duet of lower price & basic functionality.
o Transition: begins with wants starting to overtake needs.
o Build-Out: sees technology defer to marketing and distribution as user
segmentation grows; in a role reversal, the environment begins to adapt to
products.
o Maturity: jaded users demand ever more effortless ease, seamless
compatibility plus price and added functionality. Products become an expression
of established wisdom at the heart of a new status quo.

13
As an example, 20
th
century fighter aircraft evolved through five eras:
o 1903-1909: pioneering flight (6 yrs.)
o 1910-1918: rotary engine biplanes (8 yrs.)
o 1918-1927: streamlined biplanes & more powerful water-cooled engines (9 yrs.)
o 1928-1942: better fuels, improved engine power/weight ratios and monoplane design
by aerodynamic principles (14 yrs.)
o 1942-1976: jets & supersonic aerodynamics (34 yrs.)
Major value-driver developments slow the refinement of each successive design
paradigm, including:
o Declining innovation: the result of supply chain consolidation into fewer producers
o Supply chain specialization with deepening supporting activities
o Growing technological complexity (five interacting 'layers' )
o Entrenchment of established practices throughout the network that makes, operates
and supports products (i.e. "not invented here)
Understanding how value drivers unfold allows both EDOs and policy-makers to work
toward realigning them.
14
Supporting activities draw from far afield as new products and services impact old
sectors. Examples include:
Information Technology:
o Radio Frequency Identification tags (RFIDs) allow tracking every cut of meat
from individual animals to the shrink-wrapped items in shipping boxes on the
plant loading dock
o Sophisticated software tracks & schedules order picking and loading
o Process automation: includes animal reception, plant floor inspection, grading,
producer payment, cooler inventory, shrinkage
o System-wide integration: links daily store sales with automatic reordering from
suppliers
Genetics:
o Sequencing & programming of the bovine genome to control commercially
important traits like growth rate and feed efficiency even short slick hair to keep
Florida cattle cool
GPS:
o Helps in controlling distribution costs by tracking truck movements
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Economic Development Officers can work with markets, suppliers and
infrastructure players to identify gaps, weak links and opportunities to better align
the continual shifts in the three drivers of value creation.
o Markets Block: ultimately drives the evolution of value proposition
o Supplier Block: marshals technology systems to meet changing value needs
o Infrastructure Block: supports adaptation to new demands on industrial supply
chains

16
The Industrial Furnishing System provides all the components, materials and
services needed to plan and construct large-scale commercial, residential and
industrial buildings.

The detailed economic analysis revealed that the supply block was well integrated
with few gaps of any consequence. Most importantly, it had an unexploited capacity
to serve projects beyond the Vaughn region.

This pointed to the adjacent Golden Horseshoe market and the need to undertake a
targeted marketing and branding initiative to build the missing links to connect with
this new sales opportunity.
17
The ICT support block had broad scope but little of the needed specialization to build
on existing strengths in the supply block.

For example, games were a particularly strong segment. While the companies in this
area were primarily start-ups, much in need of venture capital and across-the-board
marketing support, such services were largely absent. This pointed to organizing new
industry initiatives to address the gaps in financing and marketing.
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We have used detailed elements from The Economics of Technology to enhance
value creation in many industries, from international space technology to agri-food
opportunities in SD&G. A few examples include:
o Wireless to meet the national industry's evolving skills needs
o Mining Supply and Support Services to expand Ontario's export opportunities
o The Canadian Housing Industry to help builders identify opportunities for applying
sustainable technology
o "Economic Development Linkages to determine opportunities for Eastern
Ontario Suppliers to tap the Ottawa high-tech market
o The Municipal Waste Industry to analyze opportunities for the economic local
recovery of chemicals and energy
o The Printing Industry to understand how computer technology is reshaping
business opportunities.
Most importantly, EDOs can apply the model to reveal new and existing
opportunities to increase local and regional value-added.
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Doyletech Thought Leadership Series: The Economics of Technology

For additional information, please contact:

Glenn McDougall
Managing Partner
Doyletech Corporation
gmcdougall@doyletechcorp.com
(613) 226-8900, Ext. 13

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This seminar is based on a forthcoming book, Technology Means Business, authored by
Dennis Senik. It develops a practical framework for bringing innovation from possibility to
full market adoption: based on understanding the forces that drive some technologies to
sweep markets and others to fail.
Dennis Senik has over thirty years of experience in S&T. As Secretary-General, he led
Montreal's largest-ever strategic review of its S&T base for the Conseil de la science et
de la technologie. He subsequently led the initiative founded by the Chairman of BCE,
industry CEOs and University Principals to connect university research with major
industrial initiatives.
As a Partner in Qubec's largest international consulting group, he led technology
marketing and strategy projects for clients like Hydro-Qubec, NRC , Bombardier,
Domtar and Hawker-Siddeley. As an engineer and manager, he led Sherwin-Williams'
new chemical coatings technology from bench-scale to the first commercial plant.
With Doyletech he assists industry and government in technology development and
commercialization. His work ranges from helping to set R&D direction to planning
research-based spin-offs, helping shape national S&T policy and leading industry-driven
technology roadmaps.
Dennis has been a speaker on the management of technological innovation at the
Conference Board of Canada and the International Organization for Science and
Technology Education. As a professor at McGill University, he developed graduate
courses in the Management of Research, Development and Technology. He is a
Professional Engineer (Chemical, Queen's) and an MBA graduate (Policy, McGill).
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Dennis R. Senik: Chief Technology Strategist Doyletech Corporation (613) 247-0725

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