S-Curve

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Description of the S-Curve by Richard D. Foster ('85). Explanation.

Contributed by: Martin Hügli

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What is the S-Curve? Description

S-Curves are a phenomenon showing the typical path of product performance in relation to investment in R&D. At first, performance rises fast and from then on, once a decline in the slope occurs the productivity is unlikely to increase much by heavy R&D expenses. More likely, a technological discontinuity will occur where an innovative technology is introduced and rapidly creates massive gains in productivity. At the start of the curve, a significant effort is needed to get an achievement, but once this basic learning has been done, productivity can advance significantly with little marginal effort. After a few years further advances get more and more fractional. As technology generations change, few incumbents survive because of a lack of adapting to the new technology.

Origin of the S-Curve. History

The method was introduced as a result of several studies on technologies and firms performances.

Usage of the S-Curve. Applications

Technology life cycle assessment.
Industry maturity.
Assignment of the necessity of strategic refocusing.

Steps in the S-Curve Process

Analyze technology expenditures (both financial and economic) and the achieved gains in productivity.
Observe the development of this relation over time and prepare for strategic realignment when the process slows down from rapid growth.

Rules of thumb for detection:

Feeling among management the R&D productivity is declining.
More and more missed R&D deadlines.
Sales-growth shifts to minor segments.
Trend of small firms in industry to invest in radically new technology.
Overall loss of productivity in industry.

Strengths of the S-Curve. Benefits

Allows for an assessment of different stages of technology.
Indicates the necessity to watch out for technological discongruities.
Indicates the necessity for strategic alignment when productivity gains decline.
Creates clear incentives for first-mover behavior.

Limitations of the S-Curve. Disadvantages

The model does not give any clear hints to managers on how to act/react in the face of technological discontinuity
It cannot be inferred from the model, how big the gains will be from new technologies.
The model does not imply when to invest in new technologies and abolish the current one.
The model does not imply how a new technology will look like and by whom it will be introduced.
The model is a generalization of observed technology paths. In reality, the size and structure of the S can vary

Book: Richard N. Foster - Innovation: The Attacker's Advantage -

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