Transformation of Knowledge into Working Artifacts

Pavitt (2005) mentions that when managers transform knowledge into products, systems and services, they need to understand the industries; in particular government-funded R&D programmes and how to manage uncertainty.

Governments usually fund the technological activities in opening and exploiting innovative opportunities. For example, the success of government-funded programmes includes ICT in USA which is a military-related programme, the early development of computers, semiconductors, software and the Internet. Military programmes have also been widened to include civil aviation in the USA. In Japan and France the government has funded the development of high-speed trains.

According to Floyd (1997), since the 1980s there have been many government- funded programmes in developed countries; for example, ‗pre-competitive‘ collaborative R&D in Europe (ESPRIT and Eureka), the USA (Sematech) and Japan (5G ICOT Program). A lot of major companies have had the opportunity to become involved in these programmes. The companies need to evaluate the potential benefits to achieve corporate goals. They also need to evaluate the financial and organizational cost of participating, and the risk and involved in not participating. The companies also need to consider how to make the government programme suit the corporate long term strategy plan.

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It is not easy to summarise the recent history of how government supports industrial innovation. All government-funded programs involve the following factors: the technical lobbies successfully persuade government to financially support the programs; the program in fields related closely to military applications; large-scale infrastructure, for example, transportation, energy, housing and communications. This process can help not to be limited by the commercial constraints and to premature commitments to particular designs. Economists emphasis the potential cost of these programs, but government support can speed up the critical technological learning at a time when purely private markets are not ready to take the risk. The early development of ICT in the USA suggests the importance of variety and experimentation in government support for technological progress.

Managing Uncertainty

Specialized R&D and related activities in business companies have become institutionalized and predictable sources of discoveries, inventions, and improvements. However, the process of innovation is complex. It includes many variables, and the properties and interactions of these variables are imperfectly understood. Companies cannot predict accurately either the technical performance of major innovations, or their acceptability to potential users. And they also cannot predict the technical and commercial outcomes of their innovative activities. Research scientists and engineers often are over-optimistic about the costs, benefits, time periods, and market demand for the products. According to Freeman (1982) and Mansfield (1995), there is a wide variation in the ratio of ex post outcomes to ex ante estimates of investment or profit within corporate portfolios of projects. As Guilloches (1990) points out a disproportionate share of corporate R&D spending leads to commercially unsuccessful projects.

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Business companies can seldom predict all possible uses from their innovations, especially radical ones. There are a lot of special successful technologies and innovations where companies do not expect a high profit outcome at the beginning. For example, in the early twentieth-century the pioneers of radio communication designed it as a system of point-to-point communications, especially between naval vessels, later on their developed massive radio communications. According to Schnaars and Berenson (1986), the founder of IBM predicted the worldwide computer market as no more than five major computers. Recently, there has been a very inaccurate forecast of world market for mobile phones, and there are also other related functions, for example, text messages, the internet, and MP3 players.

Corporate managers have difficult in dealing with innovative activities. The innovative activities have several elements, for instance, the investment market; continuous feedback from the market; experiences and experimentations. Top-down corporate vision is not good for the innovation strategies. For example, the reason for Ericsson‘s success in mobile phone is the middle-level technical managers‘ suggestions rather than the estimates of top managers. The failures of top-down visions are easily forgotten and the successes oversimplified. Another example, Prahalad and Hamel (1990) state Canon was very successful in diversifying from optics mechanics into electronics products, whereas Sandoz (1997) suggests that Canon failed in diversification into recording products and electronic calculators.

Managers need to match the products, systems, services, organizational practices and the actual and potential market demand in the successful companies (Pavitt, 2005) if the innovation is to succeed. The innovation will be based on the company‘s accumulated knowledge of product and process technologies, of organizational

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practices, and users‘ requirements. It also needs to make adjustments according to the market demands, and new technological change.

Chandler (1997) states technologies and organizational practices co-evolve with market demand. This process involves the adaptation of company organizational practices to market needs and technological opportunities. Technical advances usually precede organizational and market advances. Firms tend to want to keep their competitive position and to refuse to use new technologies and knowledge in future product and process development. Thus leading companies in new technologies are rarely those that led with the old technology.

According to Aris (1998), in the long term because the market decides on the exploitation of advancing technological knowledge, companies cannot develop by carrying out traditional cost-benefit analysis and limited cost. At all events costs may be possible to estimate with some degree of accuracy but benefits rarely are, as they depend heavily on the level of market demand. Pavitt (2005) summaries the organizational and marketing practices that must be consistent with several key features of technologies:

 External linkages with potential customers, and with the important sources of knowledge and skills.

 Internal linkages in the key functional interfaces for experimentation and learning.

 The centralization of resource allocation and monitoring activities needs to be consonant with the costs of technological and marker experimentation.

 Criteria for resource allocation need to be consonant with levels of technological and market opportunity.

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 Alignment of professional groups, who possess power and control, with fields of future opportunity.