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Every product has a life cycle. However, technology products – by their nature – seem to grow, mature and decline at a faster rate than other types of product.
If you've just developed a new technology, how long do you think it will give you a competitive edge? And have you looked at what you can do at each stage of its life cycle to maximize your profits?
In this article, we'll explore this, and we'll see how you can shape your strategy and investment priorities accordingly.
About the Model
The Technology Life Cycle*, shown in figure 1 below, illustrates the typical life cycle of an innovation, from conception to decline. It helps you understand the commercial gain that you may be able to get from a new product, and predict when you'll be able to generate significant profits from it.
Figure 1: The Technology Life Cycle
Reproduced from 'Technology Life Cycle.
There are four phases in the Technology Life Cycle:
- Phase 1: Research and Development.
- Phase 2: Ascent.
- Phase 3: Maturity.
- Phase 4: Decline.
In phase one, the company invests in internal research and development of a new product, and in phase two, we see its initial launch and early sales. In phase three, the product is penetrating the market and competition is beginning to emerge, while, in the final stage, the product is declining as it starts to become obsolete.
You can see this with the innovation behind the technology of Amazon's Kindle® e-reader. It is a product that incurred significant research and development costs. But, because of the nature of the technology, Amazon's competitors were able to respond quickly.
Because Amazon knows that patents will only protect its product for so long, it had to come up with a strategy to generate follow-on revenue. This involved launching a range of devices, including e-readers with touch-sensitive screens, a tablet computer with a color display, reader apps, and a lower-priced model.
Note:
Sometimes, people compare the Technology Life Cycle to the Gartner Hype Cycle, developed by Gartner, Inc. and Jackie Fenn, or the Product Diffusion Curve, which encourages you to target different customer groups at different stages of a product's life.
Explore these different models to see which one is most useful to you.
Applying the Technology Life Cycle
How you work with this model depends on where your product is in its life cycle.
Phase 1: Research and Development
The research and development stage is the riskiest of the four stages. Here, you invest time, money and resources into a technology that may or may not work out.
To maximize the opportunities in this phase, identify your Critical Success Factors and make sure that your investments are aligned. For each project or product, estimate the market size to ensure that there's a big enough customer base for investment to be worthwhile.
Make sure that the product has a clear and sustainable USP, and that it builds upon one of your organization's core competencies, or some other unique resource such as a patent – that way, it's hard for competitors to copy.
Finally, consider using business experiments and minimum viable products to test your ideas quickly, so that you develop something that fully meets customers' real needs.
Phase 2: Ascent
This marks a period in a product's life when you're introducing it to the market and experiencing early success. This stage begins to flatten out when equivalent technologies appear and start to challenge you in the market.
The goal here is to move quickly, so that you can take full advantage of having the newest technology on the market. During this time, you have a market-leading product and significant competitive advantage, and you can charge a premium for your new product.
To maximize the opportunities during this stage, develop a solid marketing strategy that connects you with the right market segments. Consider the product mix that you want to offer – the Product Diffusion Curve will help here.
Look carefully at your pricing structure and make sure that you charge enough to make a healthy profit, but not so much that you deter customers. Use Keller's Brand Equity Model to learn how to build a powerful brand that stands out and appeals to your target market.
Last, make sure that your production line (whether it's in-house or outsourced) is as streamlined and error free as possible. Efficiency here will cut costs and quicken your time to market – use approaches like Kaizen and Lean Manufacturing to improve quality and reduce production time.
Phase 3: Maturity
By Phase 3, the market has accepted your innovation. Growth is stable, and your competitors have started to market similar products.
To maximize opportunities in this phase, look for other ways to increase profits with your technology. You might want to consider a joint venture, a strategic alliance or an expansion into a new market or region. Also, look to innovate and add value with approaches like Doblin's 10 Ten Types of Innovation®.
Phase 4: Decline
Your product enters the decline phase when growth and earnings drop as your competitors saturate the market with similar or more technologically advanced offerings.
As every product eventually withers and fades, you need to prepare yourself well in advance by developing a continuous pipeline of diverse ideas and products for the market. That way, as one goes into the decline phase, another will enter its ascent.
Use the concept of McKinsey's Three Horizons of Growth to manage this continual development of new ideas within your organization. And, make sure that your organization's culture supports innovation and creative thinking.
Encourage your team members to share their ideas, and follow through on the most promising ones – that way, your business will continue to thrive despite the obsolescence of key products.
Key Points
The Technology Life Cycle model plots the typical rise and fall of technology, from inception to decline. The model helps you think about how you'll make the greatest possible commercial gain from a new product, but also alerts you to the need to develop a pipeline of new products if your business is going to survive and thrive in the long term.
The four phases in the Technology Life Cycle are:
- Phase 1: Research and Development.
- Phase 2: Ascent.
- Phase 3: Maturity.
- Phase 4: Decline.
It's good to understand these phases so that you can predict where your product is at any given time. You can then use this information to make strategic choices about licensing, marketing and competitor response.
* Originator unknown. Please contact mtecustomerservices@mindtools.com if you know who the originator is.
